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THE 

ELEMENTS OF POLITICAL ECONOMY. 



THE 



ELEMENTS 



POLITICAL ECOI^OMT 



EMILE DE LAVELEYB 



TRANSLATED BY 

ALFRED W. POLLARD, B.A. 

ST. johk's college, OXrOBD 
"^i \yi WITH AN INTRODUCTION AND StTPPLEMENTAKT CHAPTER BY 

^^ 7 F. W. TAUSSIG 

jj INSTBTJCTOE IN POLITICAL ECONOMT, HAEVAED COLLEGE 




NEW YORK 

O. P. PUTNAM'S SONS 

27 AND 29 West 23d Street 

1884 



^ S 3 



AUTHOR'S PREFACE. 

In this elementary treatise, designed as a manual 
of instruction, I deviate from time to time from 
the course commonly followed, because, in my 
view, the object of Political Economy is not that 
ordinarily indicated. What is of importance, as 
it seems to me, is the conduct of individuals and 
of states, with regard to the production and 
employment of wealth — that is to say, the moral 
and political side of our science. In manuals 
where everything has to be condensed into a few 
pages, writers often confine themselves to the defini- 
tions, and to the brief summary of a few general 
laws. Reduced to this, political economy presents 
little that is useful. 

I have endeavoured to connect my subject 
closely with those of the other branches of study 



vi Author's Preface. 



dealing with hurnau life; that is to say, with 
philosophy, moral science, the traditions of the 
past, history and geography. Geography describes 
the positions of nations, and history relates their 
annals. No advantage can be gained from the 
lessons which either offers without the aid of 
political economy. At the present day it is 
allowed that the most important part of history 
is that which traces the progress of humanity in 
comfort and liberty. To understand this advance 
from prehistoric barbarism to the prodigious de- 
velopment of wealth which marks our own 
epoch, a knowledge of economy is indispensable. 

In order to show more clearly the close con- 
nection which exists between history and political 
economy, I have not hesitated to multiply quota- 
tions from established writers. To the enunciation 
of each principle I have added an example, a 
fact, a maxim, hoping that the volume thus en- 
larged might yet seem all the shorter, through 
the attention being better sustained. 

Some chapters, such as those which deal with 
socialism, with credit, with commercial crises or 



Aitthor's Pre/ace. vii 

with population, will seem perhaps to treat the 
questions in greater detail than is needed in an 
elementary treatise. It should not, however, be 
forgotten that nowadays the young man, on leaving 
his school or college, finds himself at once beset 
with these important problems. The social question 
is the subject of every day discussion ; as to credit, 
we all resort to it ; crises threaten our property at 
every instant. The question of population is that 
on which the future of our country depends. 

As citizens of a free country we need the training 
of men. From our earliest years the state claims 
our attention ; even in childhood political economy 
ought to make us see that freedom leads nations 
to prosperity, while despotism leads them to decay. 

Need more be urged to prove the necessity of 
spreading economic knowledge ? The greater part 
of the evils from which societies suffer spring from 
their ignorance of this subject. National rivalries, 
restrictions on trade, wars of tariffs, improvidence 
of the labouring classes, antagonism between 
workmen and employers, over-speculation, ill- 
directed charity, excessive and ill-assessed taxes. 



viii AutJiors Preface. 

unproductive expenditure on the part of nations 
or towns — are all so many causes of misery spring- 
ing from economic errors. 

Natural science, which, is so highly esteemed at 
the present day, shows man, like other animate 
beings, subservient to his individual interest. While 
maintaining that man, a free moral agent, may 
and ought to listen to the voice of duty, and 
sacrifice himself for his family, for his country 
and for mankind, one must recognise the fact that 
the habitual motive of his actions is the pursuit 
of what is useful to him. If this be so, is not 
the science indispensable which shows in what 
utility consists, and how men united in society 
may best attain it ? 



TEANSLATOE'S PEEFACE. 

This translatiou of M. de Laveleye's Les EUments 
de VEconomie Politique was undertaken in the 
hope that the work in its English dress might 
be useful to students as a supplement to some 
of the many handbooks already in existence. In 
English treatises political economy still retains 
its character of the "dismal science." In Les 
Elements the subject seemed humanised by a 
more liberal and broader treatment, and this is 
the reason of the present translation being offered 
to the reader. 

As the difference in tone is thus the distinctive 
feature of M. de Laveleye's work, the fewest pos- 
sible alterations have been made in this edition. 
A few quotations have been omitted, and here 
and there an Eoglish illustration substituted for 



Translator's Preface. 



a French one. It may be added that the whole 
of the translation has had the benefit of the 
author's revision. 

Before the present translator began his task a 
few chapters of Book I. had been already Englished 
by Mr. G. L. Marriott, the author of the able version 
of M. de Laveleye's work on Primitive Property. 
The translator desires to acknowledge Mr. Marriott's 
kindness in handing him over his translation of 
these chapters when prevented by other engage- 
ments from continuing his version. 



INTEODUCTORY NOTE. 

No APOLOGY is needed for introducing to American 
readers the work of so distinguished an author as 
Professor Layeleye. A large number of publications, 
coyering a remarkably wide range of subjects, have 
made his name familiar to the reading public of 
ciyilized countries. Professor Layeleye has been an 
actiye literary worker for forty years ; and in the 
course of his career he has thrown light on some of 
the most important problems of literature, history, 
and social science. In the field of literature, ho 
published, in his early years, an interesting book on 
the language and literature of Proyence ; and has 
written translations of the Nibelungen-lied and the 
Edda. In history, he has published a yolume on the 
Prankish Kings, and has made a number of contribu- 
tions to the recent history of Germany, with especial 

reference to the eyents of 1866. Chiefly historical, 

xi 



xii Introductory Note. 



but with, an important bearing on social and economic 
questions, is the well-known work on Primitive 
Property, which has been translated into English, and 
has done more, perhaps, than any other single work, 
to extend the reputation of its author. But it is in 
the field of social and economic science that his con- 
tributions to knowledge have been of most importance. 
He has published numerous books and articles on the 
forms of government in modern societies, on the re- 
lations of church and state, on several branches of 
international law, on education, on economic topics, 
and on the political questions of his own country and 
of foreign countries. Many of his publications ap- 
peared first in the columns of periodicals, notably in 
the Revue de Deux Mondes, to which he has been for 
many years an active contributor. In recent years he 
has also made contributions to English periodicals. 
The ease and grace of his style, and the clearness of 
his exposition, have brought his writings before a large 
circle of readers ; and their general soundness and 
impartiality have made them of great weight with 
competent judges. Professor Laveleye was born in 
1822, and has been since 1864 professor of political 
economy at the University of Liege. 



Introductory Note, xiii 

On political economy the more important works of 
Professor Layeleye have been : an essay on the Eural 
Economy of Belgium (1863), and a similar essay on 
the Eural Economy of Holland (1864) ; the Money 
Market during the last fifty years (1865) ; the volume 
on Primitiye Property, already referred to (1874) ; 
Contemporary Socialism (1881) ; and the present 
Elements of Political Economy, published in Erench 
in 1882. A large number of articles in reyiews and 
periodicals, many of them of permanent importance, 
haye also appeared from his pen. Professor Layeleye's 
economic yiews are in strong sympathy with those who 
declare themselyes to have broken loose from what 
may be called the classic system, as built up in the 
works of Adam Smith, Malthus, Kicardo, and the 
younger Mill. At the same time, he by no means goes 
as far as those writers, chiefly German, who declare 
that the classic system is entirely superseded. His 
position is rather that of the more moderate Ger- 
man writers y/ho protest against the hard and fast 
lines of Eicardo's system, and especially against 
the dogmatic exposition of Eicardo's system which 
has been common with some of his followers ; but 
who neyertheless retain, with more or less quali- 



xiv Introductory Note. 

fication and explanation, the essential doctrines of the 
great English thinker. In the presentation of eco- 
nomic principles by these writers, the qualifications 
and explanations, which are undoubtedly necessary to 
the correct statement of the principles, sometimes 
OYcrshadow the latter, and detract from their incisive- 
ness. This fault may perhaps be found with the 
present work. The edge may be said to be taken off 
the great principles by the qualifications and excep- 
tions with which they are stated. But surely this 
method of presenting the subject is preferable to the 
bald, unqualified, and scientifically inexact statements 
which are common in many English elementary books. 
And, after all, the diyergence of this moderate school 
from the classic system is more in spirit than in sub- 
stance. The spirit of the classic writers was, for 
instance, strongly against goyernment interference 
in industry. Professor Layeleye, like most German 
writers, and unlike most French writers, is not a 
decided adherent of the laissez faire principle. 
Especially in the relations of the state to the working 
classes, he has been willing to disregard that principle ; 
and his keen sympathy with these classes has some- 
times perhaps carried him too far in his yiews of the 



Introductory Note, xv 

duty of the state, and of the possible results to be 
achieyed by legislation. Again, Professor Layeleye 
insists on a more concrete treatment of economic sub- 
jects than was common with Ricardo and his fol- 
lowers. He belieyes, as the reader will obserye from 
the chapter in this book on the method of inyestiga- 
tion, that economic laws are to be ascertained by in- 
duction, — by obseryation of the facts presented by 
history, physical science, and statistics. Some results 
of this belief are to be found in the frequent historical 
references in the present yolume. Whateyer may be 
the difference of opinion among economists on the 
question of the proper method in their subject, no 
one will deny that this greater attention to the actual 
facts of the past and of the present is an adyan- 
tage. 

On some questions of detail, and on some of the 
unsolyed problems of political economy, Professor 
Layeleye differs, ineyitably, from other writers ; and 
his opinions on such questions, though of weight, can- 
not be accepted as authoritatiye. But in an elementary 
work like the present, questions of this kind are but 
little touched on. Such a work must necessarily be 
occupied chiefly with a presentation of the great 



xvi Introductory Note, 

principles of the science. On these, competent 
thinkers are agreed ; and the fundamental principles 
of the production and consumption of wealth, of its 
distribution into wages, interest, and rent, of popula- 
tion, of yalue and price, of money and credit, of inter- 
national trade, and of taxation, as laid down in these 
elements, cannot be disputed. 

Some doubtful points are necessarily touched on ; 
and it may be well to point out cases in which the 
propositions advanced in this yolume are to be accepted 
with qualification. The wages question is still one 
of the disputed fields of political economy. Professor 
Laveleye's explanation of the causes that goyern the 
rate of wages, which is the one usually giyen in Ger- 
man treatises of the present time, is doubtless true as 
far as it goes ; but it hardly giyes a complete solution 
of that difficult problem. 

Professor Layeleye, it is well known, has been an 
earnest adyocate of international bi-metallism ; and in 
connection with that question he states, probably too 
strongly, the objections against a single gold standard, 
and the reasons in fayor of a double standard. 

It has already been said that the strong humani- 
tarian spirit of our author sometimes carries him too 



Introductory Note, xvii 

far ; an instance may be found in the somewliat sweep- 
ing statement, on page 96, that it is the duty of the 
public to indemnify workmen who are thrown out 
of employment by the introduction of machinery. 
Again, the connection between the abundance or 
scarcity of money, and the rate of interest, is perhaps t^ 
too broadly stated on page 197. But these statements, 
and others in which economic critics may find flaws, 
turn yery largely on questions of degree or of 
emphasis, on which there is a natural divergence of 
oj)inions, and on which, moreoyer. Professor Layeleye 
does not stand alone. In the main, the principles 
laid down are those accepted by all economists of 
weight. The clearness and attractiyeness of the 
author's style make his presentation of them especially 
valuable for those who wish to obtain an elementary 
knowledge of political economy. 

In the supplementary chapter some of the questions 
which are of great practical importance at the present 
time in the United States are taken up, and a brief 
statement is made of the economic principles which 
apply to them. On practical questions, difference of 
opinion is inevitable ; and there may be those who will 
object to some of the conclusions reached in this 



xviii Introductory Note. 

chapter, especially in regard to the subject of money. 
The writer has endeavoured to state only such con- 
clusions as are warranted by reason and expe- 
rience. 

F. W. Taussig. 



TABLE OF CONTENTS. 
BOOK I. 

PRELIMINARY REMARKS. 



CHAPTEE, I. 

PAGE 

The Meaning of Economic Science 1 

§ 1. Definition and object of Political Economy .... 1 
§ 2. What Political Economy is not . 3 



CHAPTER II. 

The Connection between Political Economy and other 
Moral and Political Sciences • 5 

§ 1. Connection between Political Economy and Philo- 
sophy or Religion 5 

§ 2. Connection between Political Economy and Ethics . 7 
§ 3. Connection between Political Economy and Law . 9 
§ 4. Connection between Political Economy and Politics 10 
§ 5. Connection between Political Economy and Inter- 
national Law H 

§ 6. Connection between Political Economy and History 12 
§ 7. Connection between Political Economy, Geography 

and Statistics 1^ 

§ 8. Laws of Nature in Political Economy 15 



XX Contents. 



CHAPTEE III. 

PAGE 

"Wealth 16 

§ 1. The meaning of 'Wealth or Eiches 16 

§ 2. Wants 18 

§ 3. False Wants and False Weiilth 20 

CHAPTEE IV. 

Value 23 

§ 1. The meaning of Value 23 

§ 2. Value in Use and Value in Exchange 26 

CHAPTEE V. 

The Method of Investigation 27 

CHAPTEE VI. 

Division of Political Economy 29 



BOOK 11. 

TEE FACTORS OF PRODUCTION AND 
PRODUCTIVE LABOUR. 

CHAPTEE r. 

The Peodtjction of Wealth 30 

§ 1. Definition of Production 30 

§ 2. The three Factors of Production 31 

CHAPTEE II. 
Natuee • • ^2 



Contents. 



XXI 



CHAPTER III. 

PAGE 

Labour 33 

§ 1. Definition of Labour 33 

§ 2. Productiveness of Lalsour 36 

§ 3. Responsibility 37 

§ 4. Influence of Nature on the Productiveness of Labour 39 

§ 5. Influence of Race 41 

§ 6. Influence of Philosophic and Religious Doctrines . 43 

§ 7. Influence of the Moral Sentiments 49 

§ 8. Influence of Justice 52 

§ 9. Civil Laws, especially those as to Property, in 

their Relation to the Productiveness of Labour . 55 
§ 10. Influence of Systems of Inheritance on the Produc- 
tiveness of Labour 56 

§ 11. Influence of Systems of Tenure 57 

§ 12. Influence of Systems of Rewarding Labour .... 59 

§ 13. Influence of Systems of Government 60 

§ 14. Influence of Democracy 63 

§ 15. Influence of Liberty 64 

§ 16. Influence of Association and Co-operation .... QQ 

§ 17. Influence of the Division of Labour ...... 67 

§ 18. Influence of Science applied to Manufacture ... 74 

§ 19. Influence of Instruction and Education 77 

§ 20. Obstacles opposed by Ignorance to the Productive- 
ness of Labour ••••• 79 



CHAPTER IV. 

Gross Product, Net Product, and the Cost of Produc- 
tion 82 



CHAPTER y. 

Capital 83 

§ 1. Different Kinds of Capital 83 

§ 2. The Formation of Capital 87 

§ 3. Machines 89 



xxii Contents. 



PAGE 

§ 4. Does Machinery Diminish the Employment and 

Wages of Workmen ? 93 

§ 5. How Machinery may Compel Workmen to change 

their Occupation 95 

§ 6. How Machinery increases the Employment of 

Workmen 96 



CHAPTER VI. 

The Establishment of an Equilibrium between Pro- 
duction AND Consumption 98 

CHAPTER VII. 
Classification of Useful Occupations 100 

'' CHAPTER VIII. 

Occupations which have to do with Men 101 

CHAPTER IX. 

Occupations Concerned with Things 103 

§ 1. Extractive Industries 103 

§ 2. Agriculture 105 

§ 3. The Progress of Agriculture 107 

§ 4. Large and Small Farming 110 

§*5. Manufacturing Industries Ill 

§ 6. Necessary Conditions of Industries on a Large Scale 115 

§ 7. Industries of Transport 116 

§ 8. Should Roads be made, and Means of Transport 

provided from Public Funds ? 118 

§ 9. Commerce 119 

CHAPTER X. 
Colonies 121 

CHAPTER XL 
Associations for the Combination of Capital .... 126 



Contents. xxiii 



BOOK III. 

DISTRIBUTION AND CIRCULATION. 

PART I.— DISTRIBUTION. 

CHAPTER I. 

PAGE 

Distribution : Eent, "Wages, Interest 131 

CHAPTER II. 
How Distribution is Accomplished 132 

CHAPTER III. 
Principles Regulating Distribution 133 

CHAPTER IV. 
Reward of the Natural Agents 135 

§1. Rent 135 

§ 2. Theory of Rent held by Ricardo and Mill .... 137 
§ 3. Arguments of Economists who deny the Existence 

of Rent 139 

CHAPTER V. 

Wages 1^., 

§ 1. Systems of Remuneration 141 

§ 2. The Iron Law 143 

§ 3. Causes of Different Rates of Wages .' 144 

§ 4. Low Wages not a Cause of Cheap Work 146 

§ 5. The Wages Fund I47 

§ 6. Is there a Natural or Normal Wage ? 148 

§ 7. The Causes which Fix the Rate of Wages .... 149 

§ 8. Flas the Condition of the Working Classes improved ? 152 



XXIY 



Contents. 



CHAPTEK YI. 

PAGE 

Means of Improving the Condition of Wage Earners , 153 

§1. Charity 154 

§ 2. Communism 154 

§ 3. Nihilism 156 

' § 4. Anarchy 157 

§5. Collectivism and the Organisation of Labour . . . 158 

§ 6. Co-operative Societies 159 

§ 7. Emigration . 160 

§8. Corporations and Trades Unions 160 

§ 9. Coalitions and Strikes 161 

§ 10. Increase of Capital and Diffusion of Property . . 163 
§ 11. The Eelation between the Rise of Wages and 

the Increase of Population 164 



CHAPTER VII. 
On the Increase of Population . . . . , 164 

CHAPTER VIII. 
Profit 169 

§ 1. Meaning and Reason of Profit 169 

§ 2. Is the Rate of Interest in Inverse Proportion to the 

Rate of Wages ? 170 

§3. Profit Tends to Diminish 171 

CHAPTER IX. 
The Reward of Capital 171 

§ 1. What Interest is 171 

§ 2. Interest Tends to Diminish 173 

§ 3. The Lawfulness of Interest, and the Laws Against 

usury 175 

§ 4. The Influence of the Abundance or Scarcity of 

Money on the Rate of Interest 179 



Contents. xxv 



PART II.— THE CIRCULATION OF WEALTH. 
CHAPTER I. 

PAGE 

Exchange 180 

§ 1. Barter 180 

§ 2. Employment of Money : Sale and Purchase ... *181 
§ 3. Influence of Exchange on Prosperity 183 

CHAPTER II. 
Sale and Purchase 184 

§ 1. Price 184 

§ 2. Supply and Demand, and the Cost of Production . 185 

§ 3. The Just Price 187 

§ 4. Usefulness of Fairs and Exchanges 188 

CHAPTER III. 
Money 189 

§ 1. Kature and Function of Money 189 

§ 2. Different Kinds of Money 191 

§3. Value of Money 193 

§ 4. Is the Abundance of Money an Advantage ? . . . 195 

§5. Monetary Systems 197 

§ 6. Monometallism and Bimetallism 202 

§ 7. The Laws of Gresham and Newton 203 

§ 8. The Maintenance of Monetary Systems 204 

CHAPTER IV. 

Credit . 205 

§ 1. "What Credit is 205 

§ 2. The Advantages and Effects of Credit 206 

§3. The Drawbacks of Credit 210 

§ 4. The Instruments of Credit 211 

§ 5. Banks 216 

§ 6. Fre3 Creation of Note-issuing Banks 222 

I 



xxvi Contents. 



CHAPTER V. - 

PAGE 

MoNETAKY, Commercial, and Industrial Crises .... 223 

§ 1. Nature of Crises 223 

§ 2. Periodical Recurrence of Crises 223 

§ 3. Characteristics of Crises 224 

' § 4. Causes of Commercial and Monetary Crises .... 227 

§ 5. Means of Preventing and Remedying Crises . . . 228 

§ 6. Industrial Crises 229 

§ 7. Speculative Crises or Crashes 229 

CHAPTER VI. 

Free Trade and Protection 231 

§ 1. Free Trade 231 

§ 2. The Balance of Trade * . . 286 

§ 3. The Oversight of Freetraders 238 

§ 4. The System of Temporary Protection 239 

§ 5. Reciprocity 240 

§ 6. Commercial Treaties 241 



BOOK IV. 

TEE CONSUMPTION OF WEALTH. 

CHAPTER I. 

On the Consumption of Wealth 243 

§ 1. What is Consumption 243 

§ 2. Different Kinds of Consumption 245 

§ 3. Should the Increase of Consumption be Encouraged ? 248 

CHAPTER II. 

Private Consumption 249 

§ 1. Luxury 249 

§ 2. Insurances 254 



Contents. xxni 



CHAPTER III. 

PAGE 



Public Consumption 256 

§ 1. The Usefulness of Public Consumption 256 

§ 2. Functions of the State 257 

§ 3. Limits of the Functions of Public Bodies .... 259 

§ 4. Public Luxuiy 262 



CHAPTER IV. 

Taxation 264 

§ 1. What is Taxation 264 

§ 2. Rules as to the Imposition of Taxes 265 

§ 3. Incidence of Taxation 268 

§ 4. A Single Tax 269 

§ 5. Direct and Indirect Taxation 269 

§ 6. The Budget 270 

§ 7. Loans 271 



SUPPLEMENTARY CHAPTER. 

Economic Questions in the United States 275 

§1. The Tariff and Wages 275 

§ 2. The Present Phase of the Tariff Question 277 

§ 3. The Internal Taxes 280 

§ 4. The Money of the United States 280 

§ 5. The Silver Question , 283 > 

§ 6. American Shipping and the Navigation Laws ... 386 



/ 



ELEMENTS OF POLITICAL ECONOMY. 

BOOK I. 

PRELIMINARY REMARKS. 
CHAPTER I. 

THE MEANING OF ECONOMIC SCIENCE. 

§ I. Definition and Object of Political 
Economy. 

The term "political economy," first used by Aristotle 
in tbe second book of his (Econoniica, and then by 
Antoine de Montchretien, the author of a TraiU de 
VEconomie Politique, published at Rouen in 1615, 
comes from three Greek words : Oikos, house ; nomos, 
law ; and polis, city or state. It denotes, therefore, 
the law, or laws, which ought to direct the adminis- 
tration of property in the state, that is, in society. 
Such Wt in fact, the object of economic science. 

B 



2 Elements of Political Economy 

Human beings have wants, and, wliea united in 
societies, observe customs or laws. To satisfy these 
wants, they have their intelKgence and their arms, 
which they employ in the production of useful 
objects. How should they be organised, or, in other 
terms, what laws should they adopt, in order to 
attain by their labour to the fullest and most 
rational satisfaction of their wants ? This is the 
problem of which political economy seeks the 
solution. 

Political economy has to do with legislation. It 
seeks an ideal the same as moral science, law, or 
politics. Almost all the economical questions that 
come under discussion are questions of legislation — 
such as the reform of the laws relating to custom 
duties, of the land laws, of the laws on currency, of 
credit, of banking, companies, factory labour, rail- 
ways, taxation, &c. The justice of these questions 
must be solved by the study of equity, their utility 
by the study of statistical and historical facts. 

The father of political economy, Adam Smith, 
defined it perfectly when he said that it proposed two 
distinct objects : first, to put the people in the 
way of procuring for themselves an ample sub- 
sistence ; and, secondly, to furnish the state with 
a revenue sufficient for the public service. 

The very name of Adam Smith's book. The 
Wealth of Nations, shows that the object is to 
determine what is conducive to the production of 
wealth, and what hinders such production. As has 



Preliminary Remarhs. 



been well said by Droz : " Political economy is a 
science whose object is to make comfort as general 
as possible." Bossuet, again, speaking of politics, 
said that " their true end is to make life easy and 
nations happy;" and such is also the aim of political 
economy. 

The doctor ought to know the human body, to 
diagnose its ailments and prescribe remedies for 
them, as well as the course of life which will pre- 
serve health. This is precisely what the economist 
has to do for society. He must know minutely the 
mechanism of the social body, must point out those 
laws and customs which bring misery upon it, and 
describe the system most favourable to the creation 
of comfort by means of labour. 
"'"^Political economy may therefore be defined as 
" the science which determines what laws men ought 
to adopt in order that they may, with the least 
possible exertion, procure the greatest abundance of 
things useful for the satisfaction of their wants; 
may distribute them justly, and consume them 
rationally." 

§ 2. What Political Economy is not. 

Political economy is commonly defined as "the 
science which describes the methods of production, 
distribution, and consumption of wealth." This de- 
finition is altogether inaccurate. The modes of 
producing wealth are described in industrial manuals 
or treatises on agriculture ; the mode of its distribu- 

b2 



4 Elements of Political Economy. 

tion is the subject of statistics; the account of its 
consumption the history of the daily life of the 
various nations. 

Political economy is not an exact science, for it 
is concerned with the wants of man, which constantly 
vary, and with his actions, which are free. Neither 
strict definitions nor methods of mathematical 
deduction are applicable to it. 

Political economy is not a physical science, for 
it does not deal with commodities considered in 
themselves, i.e., as material objects, but with the laws 
that assist the production of these commodities ; and 
these laws are relations of the moral order. 

Nor yet is political economy a branch of the 
natural history of man, for it does not inquire how 
he arrives at producing what he consumes, but what 
the institutions are which allow of his doing this to 
the best advantage. 

Again, it is not, as is so often asserted, " the science 
of labour." Descartes' idea of this latter science is 
this : " There is a practical science, by means of which, 
understanding the nature of force and the action 
of fire, water, air, the stars, the heavens, and all the 
bodies which surround us as clearly as we understand 
the various crafts of our artisans, we might in the 
same manner put these agents to all the uses for 
which they are adapted, and so make ourselves 
masters and owners of nature.*' 

The science of labour is technology. Political 
economy has quite another object. It seeks to dis- 



Preliminary Remarhs. 



cover the laws, whether moral, religious, political, 
civil, or commercial, which are most favourable to 
the efficiency of labour. It does not teach us how 
to cultivate the soil, or to work mines, or to make 
bread. All this is strictly the science of labour. 



CHAPTER II. 

THE CONNECTION BETWEEN POLITICAL ECONOMY AND 
OTHER MORAL AND POLITIC^AL SCIENCES. 

Political economy is one branch of the group of 
sciences, the object of which is the study of human 
societies, and which are known in the present day 
by the name of Sociology. 

§ I. Connection between Political Economy 
and Philosophy or Religion. 

Political economy, regarding man as pursuing the 
useful, is subordinate to the sciences which regard 
man as pursuing the good and the true, that is to 
say, to religion or philosophy. These discuss what 
are the nature and destiny of man, and the use 
individuals or societies make of their time and of 
their property depends on the idea which they form 
of man's destiny. The doctrines which see in man 
nothing but a body, and in life nothing but an exist- 
ence of a few moments, stolen from nothingness, 



6 Elements of Political Economy. 

will plunge societies into the exclusive pursuit of 
enjoyment. Asceticism, on the other hand, for which 
the body is only a source of sin, and life only a 
probation, will wish to suppress the satisfaction of 
the most essential wants, and will urge the individual 
to annihilate himself in the deserts of the Thebaid, 
on the pillar of the Stylite, or, in India, in the 
aspiration after the Nirvana. 

Avoiding both these excesses, true philosophy 
teaches us that man ought to seek the full develop- 
ment of all his faculties : those of the mind first, 
because the intellectual life is the most essential, 
but those of the body as well, because it is the 
instrument of the soul. This object is indicated in 
the well known maxim of antiquity : Mens sana in 
corpore sano {Juvenal, Sat. xv., 1. 356). Hence it 
follows that while seeking the useful, which is its 
peculiar object, political economy should never forget 
that material wealth is a means and not an end — the 
condition of moral and intellectual progress, not the 
end of life. On the one hand one must not listen to 
asceticism which sacrifices the body, nor, on the 
other, to Sybaritism, which sacrifices everything to 
the body. 

The economist should learn from the philosopher 
what are . the motives of human action, so as to 
regulate the order of society in such manner that 
men should be constantly induced to employ their 
time and their strength to the greatest use. The 
science of the motives which determine the will 



Preliminary Remarhs. 



ought accordingly to serve as basis for the science of 
the laws which govern the production of wealth. 

§ 2. Connection between Political Economy 
and Ethics. 

The connection between ethics and political 
economy is close. 

"Ethics," says an eminent French philosopher, 
Francois Huet, " is the science of moral perfection 
and worth, just as economy is the science of material 
comfort and value." Ethics, in fact, determines what 
are our duties in relation to God, to our neighbours 
and to ourselves ; and these ideas of our duties ought 
to govern all the actions of economic life. 

Ethics enjoins moderation in our needs, energy and 
conscientiousness in our work, fidelity to our engage- 
ments, thrift and prudence in the use of our income, 
and regard for justice in our relations with one 
another. There is not one of these laws that is not 
an essential rule in economy. Energy in labour 
insures abundant production; respect for justice, a 
fair distribution ; respect for engagements, abundant 
credit; the spirit of thrift leads to the creation of 
capital, and the moderation of desires to a good use 
of time and property. 

In the ethical code you find the true root of 
economic laws. The good, the end of ethics, and 
the useful, the end of political economy, without 
being confounded, are inseparable; for the pursuit 
of the good is always favourable^ to the production of 



8 Elements of Political Economy. 

the useful. Hutcheson, the father of Scotch philo- 
sophy, inserted in his course of moral philosophy 
(1729-1747) some lessons on Economics. Adam 
Smith's book, The Wealth of Nations, regarded as 
the gospel of political economy, was only a fragment 
of a larger work treating of the Moral Sentime^its. 
In his treatise on ideology Destutt de Tracy discusses 
political economy as an application of the theory 
of will. 

Political economy, in its turn, is, as Droz has said, 
the best aid to ethics, for it shows the advantages 
which result from the practice of virtue, and the evils 
which are the inevitable consequence of vice. 

In fine, ethics is the science of "The Good," 
political economy the science of goods. The latter 
is thus the application of the former — that is to say, 
it is morality in action. Ancient writers, such as 
Xenophon and Aristotle, understood by political 
economy certain rules which the state or the indi- 
vidual ought to follow in the pursuit of comfort and 
the employment of wealth. The most erudite of 
contemporary economists, M. Roscher, has declared 
that the rales laid down by the ancients for the 
employment of wealth are the essence of the 
whole matter. In these maxims the relation con- 
necting political economy and ethics is conclusively 
established. 



Preliminary Remarks. 9 



§ 3. Connection between Political Economy 

and Law. 

At any given moment there is some organisation 
for societies, which, if respected, would be most 
favourable to the advancement of the human race. 
This dispensation is the law — civil, constitutional, 
economic, international ; obedience to this is a duty, 
and at the same time the highest advantage. 

Right, or law, is accordingly the direct, or right, 
road to good, that is, to the perfection of man 
and society. In Sanskrit rita, in German recht, in 
English right, in French droit, signify alike the 
straight or direct road, and right, justice, law. To 
walk in the right road, or in the path of right, is 
therefore to do everything which is truly advan- 
tageous. Justice and utility lay down the same 
laws. As a French philosopher, Bordas-Demoulin, 
has said : " The useful is the practical aspect of the 
just; the just the moral aspect of the useful." These 
qualities cannot be antagonistic ; and if they appear to 
be so, to choose that which is just is to ensure doing 
that which is useful. On the other hand, what is un~ 
just or immoral can never be really useful. Nihil 
utile quod non sit honestum, was an ancient proverb. 
" The plan of Themistocles," said Aristides, ''is much 
to our advantage, but it is supremely unjust," and so 
saying he secured its rejection. Seek justice first, 
and the rest will be added unto you. 

Political economy and law underlie one another. 



10 Elements of Political Economy. 

The man who is ignorant of law will be unable 
to fathom political economy; and the man who 
is ignorant of political economy will be unable 
to trace the sources of law. All the acts of 
economic life are exercised under the empire of 
civil institutions ; and all civil institutions have 
economic interests for their final cause. If civil 
codes have established rights of property, of in- 
heritance, or of testamentary disposition, the equal 
right of succession or the right of primogeniture, 
mortgage and terms of prescription, it is because 
the legislator has believed that these laws were the 
most favourable to the preservation and increase of 
wealth. For laws ought to be such that it is to a 
man's interest to be always upright, industrious, and 
thrifty. Lastly, commercial law, governing the legal 
relations arising out of trade, is dictated entirely by 
economic considerations. 

§ 4. Connection between Political Economy 
and Politics. 

Politics seeks to determine the form of govern- 
ment which^ at a given time and for a given country, 
will secure in the highest degree the liberty and 
well-being of individuals. Political economy, in a 
more general manner, seeks to determine the laws 
which are most conducive to an abundant produc- 
tion of wealth, its fair distribution, and wholesome 
consumption. 

These two sciences, therefore, as their names 



Preliminary Remarhs. 11 

indicate, have the same end. A good political con- 
stitution is the first condition of productive labour 
and of the saving that creates capital, in a word, of 
economic progress. To this despotism and anarchy- 
are alike an obstacle. Before promulgating a political 
law, the lawgiver should always examine what in- 
fluence it will have on the increase of the national 
well-being. The science of administration, which is 
only the application of public law, ought to take 
the same principles as its guide. 

§ 5. Connection between Political Economy 
and International Law. 

Political economy has given a new basis to inter- 
national law. In all ancient times, and until the 
economists of the last century, the interests of 
nations were thought to be antagonistic to one 
another; and men believed with Montaigne, that 
"the profit of the one is the loss of the other." 
Economists have proved, on the contrary, that just 
as it is to a merchant's interest to have customers 
near him rich enough to pay a high price for his 
commodities, so it is to the interest of a nation 
to be surrounded by other prosperous nations in a 
condition to purchase of it, at a good price, all that 
it wishes to sell, and to supply it with an abund- 
ance of all that it wishes to obtain. For the popular 
maxim : "One man's loss is another man's gain," we 
ought to substitute, "One man's loss is every man s 
loss." By proving that every one is interested in 



12 Elements of Political Economy. 

the well-being of his fellows, our science has given 
selfishness as a motive to fraternity, and proved the 
truth of Beranger's fine lines : 

" Aimer, aimer, c'est etre utile a soi ; 
Se faire aimer, c'est etre utile aux autres." 

It the truths established by political economy 
were generally understood, there would be no longer 
either war, or preparation for war ; for the most 
successful war is always a calamity for the victor 
as much as for the vanquished. As Scialoja, an 
Italian economist, has justly said : International 
justice will be the offspring of economic calculation. 
The prophet Isaiah uttered the admirable expres- 
sion : " The work of Righteousness shall be Peace." 

§ 6. Connection between Political Economy 
and History. 

Political economy can establish nothing without 
the aid of statistics and history ; for it is 
only by consulting these two sciences that it can 
learn what it seeks to determine ; that is to say, 
what are the laws which are useful or fatal to 
nations. 

Equally in its turn is political economy indis- 
pensable to history, for it alone can discover the 
causes which have led to the greatness or decay of 
states. The power of states is proportional to their 
population and their wealth. The development of 
population and wealth depends on economic causes. 



Preliminary Remarhs. 13 

These, therefore, are the ultimate source of the great 
events of history. 

In history this is the question which dominates all 
the rest — Why did a given state become great ? 
Why did another given state decline ? To this 
question political economy alone can give a sound 
answer. 

Historians speak of the fatal cycle which empires 
pass through, growing to greatness at first merely to 
arrive at final decay. These vicissitudes, or corsi and 
ricorsi, as Vico calls them, they explain by saying 
that nations must pass through the four ages of life 
traversed by individuals — infancy, youth, manhood, 
and old age, attended by decrepitude. The com- 
parison, however, does not hold good ; for, as gene- 
ration succeeds to generation, a nation is always 
equally young. 

A philosopher-economist, Destutt de Tracy, ex- 
plains the economic cause of the fact attested by 
the historian. " Society," he says, " by securing to 
every one security of person and property, causes 
the development of our faculties. This develop- 
ment produces the increase of our wealth; the 
increase of wealth leads sooner or later to its very 
unequal distribution ; and this, by bringing back the 
inequality of power, which society at first limited 
and was intended to abolish, begets weakness and 
sometimes final dissolution." {Moments d'IdSologie, 
pt. iv. c. X.) 

Since the fall of states has always been brought 



14 Elements of Political Economy. 

about by the imperfection of laws and institutions 
producing economic disorder, we may suppose tliat 
the progress of social science will allow us to escape 
from the fatal circle, and will secure to mankind a 
career of unlimited progress. This is the hope of 
our time, and probably the destiny of our race. 

The philosophy of history, which seeks in the 
course of events a law of Providence, as with Bossuet, 
or an inevitable physical law, as with Buckle, is at 
once chimerical and of little use. That philosophy, 
however, which should make known the causes which 
have made certain nations free and prosperous, and 
others servile and miserable, would be of the greatest 
use ; for it would teach men what they ought to do 
and what they ought to avoid. 

§ 7. Connection between Political Economy, 
Geography, and Statistics. 

Geography is the description of natural facts, 
statistics the science of social facts expressed by 
numbers. These two sciences are the indispensable 
allies of political economy. For it is by the study of 
the facts attested by them that the economist can 
learn the effect of laws, and thus decide whether 
they are favourable or injurious to the production 
of useful commodities and the increase of comfort. 

For instance : Are small estates preferable to 
laree ? It is statistics that must tell us what is 
the production of food, the quantity of cattle, the 



Preliminary Remm^hs. 15 

length of roads, the number and condition of the 
inhabitants — in short, what is the wealth of countries 
where large and small properties prevail, and thus 
enable us to compare the results of the two systems. 
On the other hand, political economy will suggest 
the questions to which geography and statistics 
must find the answer, questions which too often they 
neglect. For instance, what, in any given country, 
is the system of property, of succession, the distri- 
bution of the soil, the modes of exchange, and so 
forth ? 

§ 8. Laws of Nature in Political Economy. 

Economic laws are commonly called natural laws. 
This is a mistake. The laws of nature, that of 
gravitation or chemical affinities, for example, are 
imposed on man just as on the rest of the universe. 
He must set himself to understand them in order to 
turn them to account, as he already does in the 
majority of industries, and especially in the use of 
steam and electricity. 

But the laws with which political economy has 
principally to do are not laws of nature or natural 
laws ; they are laws laid down by the legislator. He 
turns the one to account by obeying them, the other 
by perfecting them. The one defy the will of man ; 
the others emanate from it. 



16 Elements of Political Economy. 



CHAPTER III. 

§ I. The Meaning of Wealth or Riches 

Political economy is tKe science of the Useful, 
or of riches or wealth. We must therefore form 
an exact idea of what riches consists in. 

The word " riches " comes from the Gothic Beiki, 
in Old German Bike, in Modern German Beich. It is 
connected with the Sanscrit root rdj, " to be power- 
ful," whence the title of Indian princes, rajah, Latin 
Tex, and in German Beich, " empire." The ricos hoiribres 
of Spain were the " great" and '' powerful." 

Riches or wealth is, in fact, power ; the power of 
getting what one wishes done by other men, either 
by remunerating them directly, as in the case of 
servants, or by purchasing the products to which 
their labour must be applied. In the middle ages 
a rich man kept in his pay a number of retainers 
ready to obey him. Thus Warwick, ''the king- 
maker," is said to have constantly maintained more 
than three thousand persons. In the present day 
the wealthy command the obedience of even more 
men ; but indirectly, by paying for the commodities 
they consume. 

Wealth, then, may be defined as everything which 
answers to men's rational wants. A useful service, 
or a useful object, are equally wealth. 



Preliminary Remarhs. 17 

But what is a rational want ? The complete and 
harmonious development of every human faculty 
being the object in view, all wants, the satisfaction 
of which tends to this end, may be considered 
rational. Psychology, or the knowledge of our 
intellectual being, will teach us the wants of the 
mind ; hygiene will teach us the wants of the 
body. 

It was long thought that the wealth of nations con- 
sisted chiefly in the amount of gold and silver which 
they could draw to themselves. As this quantity 
is limited, every state endeavoured to obtain from 
other states as much of it as possible by bounties, 
by customs dues, and by regulations restricting trade 
with foreign countries. Hence arose commercial 
rivalry, political hostility, and finally open war. 

A well-known economist, J. B. Say, remarks that 
in the seventeenth and eighteenth centuries more 
than fifty years' war was caused solely by this false 
idea of wealth. In social science errors are fruitful 
in evils which afflict mankind and ruin nations. 

Many economists have regarded as wealth only 
such thing^s as can be bousrht and sold. This is 
an error, in our view. Wealth is what is good and 
useful — a good climate, well-kept roads, seas teeming 
with fish, are unquestionably wealth to a country, 
and yet they cannot be bought. 

"Goods" (nearly synonymous with "wealth") is 
an admirable word. The supreme good is the sub- 
ject of philosophy and religion, and "goods" the 

c 



18 Elements of Political Economy. 

subject of political economy. In " goods " or wealth 
must be included all that is good for the advance- 
ment of the individual and of the human race. 

From this idea of wealth it follows, that besides 
material riches there is also immaterial riches, such 
as knowledge, manual skill, or the taste for work. 
The growth of riches is not an unmixed benefit 
unless it be accompanied by the growth of justice 
and morality. 

It is the abundance of commodities, and not their 
money value, which constitutes wealth. The greater 
the abundance of useful objects the less will be their 
price and money value ; but, meanwhile, real wealth 
is increased. 

§ 2. Wants. 

A want is the being without something that is 
necessary, useful, or agreeable. Want begets desire, 
and desire action. Action, in this view, is the pursuit 
of objects desired because they answer to wants. 

These objects are good, inasmuch as they are the 
condition of that development of our nature which 
is the supreme good. The abundance of goods or 
commodities constitutes wealth. Man attains to it 
by labour, which is regulated by reason and directed 
by knowledge, under the sway of law and right. 

Political economy tells us what social laws best 
enable human labour to satisfy human wants. The 
science of economy is therefore based on the notion 
of want. In order to satisfy his wants, man labours 



Preliminary Remarhs. 19 

and saves, and seeks incessantly to improve the 
instruments and processes of his labour. Wants, 
labour, the satisfaction of wants — such is therefore 
the economic circle, in which nations and individuals 
are moving day by day and year by year. 

Food, clothing, lodging, and furniture are the chief 
wants of the body. The cultivation of the mind 
and the moral sentiments, of taste, and of family 
and social relations, is a want of the moral 
kind. 

The number and nature of rational wants varies 
with the climate and the state of civilisation. It 
may be good to satisfy more and more wants, in 
proportion as the means of producing useful com- 
modities are improved. Still it is not true that 
the progress of civilisation must be measured by the 
number of wants satisfied ; nor that it is necessary 
to the solution of economic problems that they 
should be constantly multiplying. Ancient philo- 
sophy, as well as the Christian code, preached the 
moderation of wants, in accordance with the fine 
maxim of Seneca : Si quern volueris esse divitem, non 
est quod cmgeas dimtias, sed minims cupidltates. If 
you would make a man rich, you need not increase 
his wealth, but rather diminish his desires. The 
economist will not gainsay Seneca. 

The time devoted to the creation of superfluous 
commodities, useless alike to the body and the mind, 
is time wasted ; and time is the material of life. It 
should be turned to good account, for it cannot be 

c 2 



20 Elements of Political Economy. 

recovered. Bodily wants, however refined they may 
be, only plunge us doubly into materialism, at the 
time when we satisfy them, and at the time when we 
are procuring what is necessary for their satisfaction. 

To encourage the indefinite multiplication of 
wants is to drive humanity into sensualism, which 
is the death of virtue, and therefore of liberty. 
Aristotle spoke very truly when he said : " The 
quantity of things which suffice to make life happy 
is limited." The greatest of human benefactors. 
Christ, Buddha, Zoroaster, all lived on little, because 
they lived the spiritual life, which is the true one. 
The spirit of an apostle in a body inured to all 
hardship, a combination of which Socrates and St. 
Paul are examples — this is the model which the 
economist will recommend. 

The end of human existence is not eating and 
drinking, but happiness, which is made up of health, 
leisure, artistic or intellectual enj-oyment, and the 
pleasures derived from intercourse with our fellows. 
There is no need to deprive either ourselves or others 
of everything in order to be always accumulating 
more wealth. This is the error stamped by Juvenal 
(viii. 84) : Et ^propter vitam, vivendi j^erdere caussas — 
for life's sake to forfeit all that makes life worth 
living. 

§ 3. False Wants and False Wealth. 

By false wants I mean wants, the satisfaction of 
which carries man farther from his aim, which is the 



Preliminary RemarJcs. 21 

development of his faculties, instead of bringing 
him nearer to it. 

Commodities consumed by these false wants are 
false wealth. They are rightly called wealth, for 
they are bought and sold for large siims. But they 
are false wealth, for they are of no real good or 
use. Often they are worse than useless — they are 
injurious ; worse than this, they are fatal. 

Alcoholic liquors are condemned by hygiene. 
They are fatal to health, produce drunkenness and all 
the vices which accompany it, degrade the man who 
abuses their use, and plunges him in the mire. Yet 
every year in France their cost amounts to about 
16,000,000/. ; in England to 20,000,000/. ; in Belgium 
to 3,200,000/. ; and in Holland to quite as much. In 
Russia the tax on such liquors brings the State 
200,000,000 roubles, or 32,000,000/.— about one- 
third of the imperial revenue. 

According to calculations made in the United States, 
in ten years alcohol imposed on the country a direct 
expenditure of about 300,000,000/., and an indirect 
expenditure of a similar sum. It has sent 100,000 
orphans to the asylums, it has brought 138,000 
persons to the prison or the workhouse, it has led 
to 10,000 suicides, and has made 200,000 widows 
and 1,000,000 orphans. The total expenditure for 
civilised countries can hardly be less than 250,000,000/. 

Opium, which brings those who smoke it to idiocy, 
annually costs China at least 16,000,000/. 

The inexplicable habit, borrowed from the savages 



22 Elements of Political Economy. 

of burning a leaf of tobacco between the lips, in order 
to absorb a certain dose of a highly noxious narcotic 
poison, costs France every year 14,400,000Z. ; Italy, 
5,520,000/.; Belgium, 1,200,000/.; and civilised 
countries generally more than 120,000,000/. — a 
moderate price for the 600,000 tons of tobacco 
which, according to the Austrian statistician, von 
Neumann- Spallart, are annually consumed. The 
highest part of the human race accordingly spends 
some 400,000,000/. to poison itself in large or small 
doses. 

Women also pay thousands of pounds for precious 
stones, which have no other effect than to foster two 
serious vices — vanity in those who wear them, and 
envy in those foolish enough to wish to have them. 

Throw into the sea the alcohol and opium, the 
tobacco and precious stones, and nothing will be lost. 
On the contrary, those who were poisoning them- 
selves and corrupting their minds and bodies will 
gain much in moral and physical well-being. Things 
whose destruction improves the condition of man- 
kind cannot be true wealth. If all the money and 
all the hours of labour which this money remunerates, 
instead of being devoted, as they now are, to pro- 
ducing hurtful commodities, were devoted to manu- 
facuturing useful ones, how the comfort in the world 
would increase and the destitution diminish I 



Preliminary RemarJcs. 23 



CHAPTER IV. 
§ I. Value. 

The value of things is in proportion to their 
utility, for wealth only merits this name in so far as 
it corresponds to a want, and thus is useful. Keal 
value, then, does not depend on estimation, but on 
the property possessed by the articles answering to 
our rational wants. Nevertheless, there will also be 
a value depending on estimation, i.e. on the opinion 
of those who desire an object ; and this opinion may 
give a value to things which do not naturally 
possess any. 

Value is a relation between the physical properties 
of things on the one hand, and men's needs on the 
other, and this relation is modified by any change in 
the needs, even when the qualities of commodities 
remain the same. Thus fur has a value in the north, 
because it is needed as a defence against the cold. 
Beneath the equator it is valueless, because this need 
no longer exists. Medicines, again, have no value 
for the healthy man, any more than food has for the 
sick man unable to swallow it. 

The value of things is not, as has been maintained,' 
determined by the labour employed in their produc- 
tion, since there are many things of the same value 
which have nevertheless cost very unequal amounts 



24 Elements of Political Economy. 

of labour ; a quarter of wheat, for instance, reaped 
from a fertile soil, and another quarter reaped from 
a poor one. Again, there are other things which have 
required similar amounts of labour and yet are of 
very different values, as the vintages of choice 
growths and ordinary wines. Lastly, the value of 
things changes daily, although it is impossible that 
any change should have taken place in the amount 
of labour embodied in them ; thus a quarter of corn 
may be worth much more, or much less, this month 
than it was last. 

Value, again, is not determined by exchange. If 
I am to exchange my horse for an ox, I must first 
form an idea of the respective values of the two 
beasts, and then compare them. Thus the idea of 
value precedes and determines exchange. An ex- 
change, when made, is constantly criticised in the 
light of ideas of value, as in the remark, A has sold 
his house, field, horse, &c., for much above, or below, 
its value. 

The real basis of a thing's value is its utility, i.e. 
the uses to which it can be put, or the wants which 
it supplies ; it is because bread satisfies my hunger 
that it has a value in my eyes. The greater this 
power of satisfying a rational want, the greater an 
object's value. An ox is thus worth ten times ag 
much as a sheep, as giving ten times as much 
nourishment. 

It must, however, be added that the value of a 
comm odity increases in proportion to its scarceness, 



Preliminary Remarks. 25 

and decreases with its abundance, and this for obvious 
reasons. The scarcer the commodity, the more 
difficult will it be to replace, and the more advan- 
tageous to possess. On the other hand, the greater 
its abundance, the less profit will it bring its 
owner. A loaf is thus of greater utility than a hat, 
but of less value, because, as a rule, more easily 
replaceable. If, however, bread became scarce and 
to replace the stock of it a matter of great difficulty, 
as in time of siege, no one would give a loaf to 
obtain ten hats. Yalue is thus determined by the 
object's utility, combined with the greater or less 
difficulty of replacing it. 

To prove that it is inaccurate to maintain that 
value depends on utility, it has been pointed out 
that while water, which is supremely useful, possesses 
no value, a diamond is of great value and of almost 
no use. This objection is founded on the vicious 
method of argument which employs the same word 
to express two different ideas. In saying that water 
is supremely useful we speak of water as an element, 
that is to say, of the whole procurable volume of it, 
and in this sense water is truly supremely useful ; but 
in this sense it is also of supreme value, inasmuch as 
any one, if deprived of it, would give all he possessed 
to obtain it. On the other hand, in speaking of 
water as of small utility, we are speaking of a. fixed 
quantity of water, such as a gallon or pint, and in 
this case water, it is true, has very little value ; but 
it is also true that such a quantity of water is of very 



26 Elements of Political Economy. 



small utility, since nothing is easier than to replace 
it. Again, in saying that a diamond, which is of great 
value, is of very little use, we pass a moral judgment, 
undoubtedly well-founded, but very ill-understood. 
The diamond possesses the utility of satisfying a 
want still very keenly felt among men, the cravings, 
namely, of vanity. In this case both the want and 
the utility are false, but neither will disappear until 
reason and justice have made great progress. Thus, 
even in the case of water and diamonds, wherever 
there is value there is also utility. 

§ 2. Value in Use, and Value in Exchange. 

"Every commodity," says Aristotle {Politics, I. ix.), 
" may be used in two ways, first to help to satisfy the 
want to answer which it has been created, and, 
secondly, to serve for exchange. Boots are of service 
in walking, but they may also, by means of exchange, 
serve to procure other objects, such as money, food, 
or any other product." 

According to Adam Smith, the utility of a thing 
in so far as it serves the need which gave it birth, 
is its value in use ; its utility, in so far as it serves 
to procure other objects, is its value in exchange. 
Value in use will depend on the services which an 
object can be made to render, such as, in the case of 
boots, the length of time they can be worn. 

Value in exchange will depend on the quantity of 
the articles which I desire to exchange already on 
the market, and also on the quantity on the market 



Preliminary Remarks. 27 

of the articles I desire to receive and which can be 
offered in exchange. If there is a large supply of 
boots and but little money, the value of boots will be 
less than if there were few of these and an abun- 
dance of money. 



CHAPTER V. 

THE METHOD OF INVESTIGATION. 

Stuart Mill says that political economy is es- 
sentially an abstract science, and its method the 
d priori method ; and he maintains that it is con- 
structed on hypotheses completely analogous to those 
which, under the name of definitions, form the basis 
of the other abstract sciences. 

J. B. Say, on the other hand, remarks : " Political 
economy has only become a science by becoming a 
science of observation." Say is right ; but not in 
the sense in which the majority quote him. The 
economist ought to employ the method of observation 
in quite a different way from the student of nature 
or physics. The latter observe facts as nature pre- 
sents them, and do not dream of changing them. 
When their task is at an end, that of the economist 
commences. 

The economist observes the motives which rouse 



28 Elements of Political Economy. 

men to action. Then lie seeks the conditions in 
which men must be placed in order that, influenced 
by these motives, they may attain to comfort by 
their labour. 

Like all animate beings, man seeks to support 
himself and to reproduce his species ; so much the 
naturalist observes. But what are the ideas and the 
laws which will induce him to increase the stock of 
food rather than to multiply his species ? This is the 
inquiry for the economist. To solve the problem he 
must study the facts presented by history, geography, 
and statistics. He marks under the empire of what 
ideas and what laws societies have been prosperous, 
and why they have been prosperous ; and under the 
empire of what ideas and what laws they have been 
wretched, and why they have been wretched. Man 
being a reasonable creature, a free agent and capable 
of improvement, the economist advises him to use 
this reason and freedom so as to adopt the former 
and reject the latter. 

The true method, then, is this : to observe facts 
not merely with a view to stating them as the 
naturalist does, but to deduce from them what laws 
and what ideas must be adopted in order that men 
may attain to comfort and subsequently to perfection. 



Preliminary RemarTcs. 29 



CHAPTER VI. 

DIVISION OF POLITICAL ECONOMY. 

I NEED bread to feed me. I have to produce it as 
economically as possible — this is the production of 
wealth. 

A companion has helped me to sow the corn, another 
to grind it, a third to make the flour into bread. 
Each ought to have his share in the produce, and we 
make the division as fairly as possible — this is the 
distribution of wealth. 

When every one has his share he ought to use it 
as rationally as possible — this is the consumption of 
wealth. 

To determine the social laws which enable wealth 
to be produced most economically, to be distributed 
most equitably, and to be consumed most rationally, 
we must study separately each of the three acts 
which make up the work of economy. 

Accordingly, we must divide the matter with 
which our science has to deal into three parts : — 

1. The production of wealth, 

2. The distribution and circulation of wealth. 

3. The consumption of wealth. 



BOOK 11. 

TEE FACTORS OF PRODUCTION AND 
FRODUCTIVE LABOUR. 



CHAPTER I 

THE PRODUCTION OF WEALTH. 

§ I. Definition of Production. 

Man lias many and constantly recurring wants. 
Guided by the impulse of the desires to which these 
give rise, he takes certain natural objects and either 
consumes them directly or fashions them in such a 
manner as to fit them to satisfy his wants. In a 
word, he produces. 

Man cannot create an atom of matter, but he 
draws minerals and combustibles from the earth, 
provisions, textiles, and commodities of all kinds 
from the cultivated soil, and by fashioning and 
transporting all these things renders them useful. 
Production, then, is the creation of utilities. 

Those who render ser\'ices to their fellow-men — the 
magistrate who enforces respect for the law, the 
policeman who protects us, the doctor who cures. 



Production and Productive Labour. 31 

and the teacher who instructs, are all doing useful 
work, and thus contribute to production, although 
their labour is not incorporated into material objects. 
To render service is, indeed, often more useful to 
man than to fashion objects, for we do not live by 
bread alone. 

§ 2, The Three Factors of Production. 

Production requires the aid of three factors, 
nature, labour, and capital. A market-gardener 
produces vegetables ; the field he cultivates is nature, 
his arms provide the labour, and the implements of 
husbandry and manure he uses are the capital. Of 
these factors the first two have preceded and created 
the third. Quite in the beginning man can be con- 
ceived living on the spontaneous products offered by 
the earth : but soon in order to kill game he would 
use a stick, or, like Hercules, a club, and, for making 
dwellings and utensils, chips of flint such as were 
owned by the prehistoric inhabitants of the lacustrine 
grottoes and cities. From this time forward capital 
has assisted labour. 

It is principally by the progressive employment of 
capital and skill that the production of riches has 
increased. Nature is not more, but less fertile, now 
than formerly, neither has there been any addition 
to man's muscular strength : by means, however, of 
more powerful machines and better processes, man 
has forced nature to yield him larger products, and 
so his prosperity continually increases. 



32 Elements of Political Economy. 



CHAPTER II. 

NATURE. 

In the case of everything adapted to satisfy man's 
wants nature furnishes the raw material upon which, 
with the help of capital, labour works, and often also 
supplies the force which facilitates production. Thus 
the soil yields us corn, and the waterfall sets in 
motion the mill which turns the corn into flour. 
But with every improvement of industrial processes 
the share of nature in the work of production 
diminishes, while those of labour and capital 
increase. 

At the outset of civilisation, under such circum- 
stances as still exist in the isles of the Pacific, man was 
nurtured by nature as a child on its mother's breast ; 
he had but to stretch his hand to take the fruit from 
the tree, the game in the forest, the fish in the 
water. To-day, in our great manufacturing towns 
the aid given by natural agents no longer attracts 
notice. We only remark the wonders of human 
labour. 



Production and Productive Labour. 33 



CHAPTER III. 

LABOUB. 

§ I. Definition of Labour. 

Labour is man's action on nature to the end to 
satisfy his wants. 

All liviDg creatures have wants and the means of 
satisfying them by the use of their faculties ; the 
mollusc absorbs the nutritive elements contained in 
water ; the ruminant browses on grass ; carnivorous 
animals pursue their prey. 

In every species there is a proportion between 
wants and the means of satisfying them ; when this 
relation ceases, the species disappears. Had he been 
devoid of reason, this must have been the fate of 
man, since in his primitive condition he appears to 
have had more wants and fewer means of satisfying 
them than any other animal. Endowed, however, 
with an intelligence capable of continuous improve- 
ment, man has been able to ceaselessly perfect his 
means of supplying the wants which have as cease- 
lessly grown more varied and numerous. A hammer 
strikes harder than his fist, a knife cuts better 
than his teeth, a hatchet, even of flint, is far 
mor6 powerful than his nails. As the methods of 
his labour improve, it becomes more productive, 

D 



34 Elements of Political Economy. 

that is to say, produces more useful articles with less 
exertion. 

Labour, as La Fontaine has told us, is a treasure. 
It is, in fact, the source of all our wealth. We can- 
not appropriate to our needs the smallest particle of 
matter without, at least, seizing it, and in most cases, 
fashioning it to our use. 

Labour is thus a natural law for man, and, as a 
consequence, a duty. Man has not only a stomach 
demanding nourishment, he has also arms intended 
to procure its food. When St. Paul said, " Whoso 
will not work, neither shall he eat," he only formu- 
lated a universal law, the breaker of which wrongs 
all his fellow-men. 

Complete idleness is a fraudulent bankruptcy. 

" Idlers," says the old Greek poet, Hesiod, are as 
the drones which eat up the fruit of the bees 
labour. Labour will make you dearer both to gods 
and men, for they hold the idle man in horror." In 
the book of Job one reads, " Man is made to labour 
as the bird to fly ; " and the Wisdom of the nations 
also has said that " Idleness is the mother of all the 
vices." We should not, however, forget that the 
labour of the hand is not the only, or the most pro- 
ductive, form of toil. The brain produces more than 
do the muscles. 

Man is made for action. As a rule it brings him 
happiness, and, even in times of affliction, a consola- 
tion. Action is indispensable to the health alike of 
his body and his souL Inaction, on the other hand, 



Production and Productive Labour. 85 

engenders misery in the poor, and in the rich, melan- 
choly. It often happens that a man who leads an 
active life longs for repose, and when he obtains it 
finds in it a burden that brings him to the grave. 
It has been well said by Yauvenargues that " Man 
only aims at rest as a release from the bondage 
of labour ; but he can have no enjoyment save 
by action, and this is his only love." In the fine 
words of a French poet : 

** Nous ne recevons I'existence 
Qu'afin de travailler pour nous ou pour autrui. 
De ce devoir sacre quiconque se dispense 

Est puni de la Providence 

Par le besoin ou par I'ennui." 

Montesquieu relates a saying of an Emperor of 
China, " If one of my subjects does not labour, there 
is some one in my country who suffers from hunger 
and cold." Since labour is action towards an end, 
it is always composed of an effort of the muscles 
guided by an effort of the mind ; thus in nailing 
planks, together to make a door, my intelligence 
directs my arms towards the goal of making a 
useful object. 

The farther industry advances the greater will be 
the share of intelligence in labour. Compare the 
carrier employed by explorers in Africa with the 
engineer who guides a locomotive. The first sweats 
and toils under a load of half a hundredweight ; the 
second by merely opening a valve sets in motion 
hundreds of tons. 

D 2 



36 Elements of Political Economy. 

All labour is a form of motion ; man can do 
nothing save alter the positions of objects. By 
placing them in what observation has revealed as 
the more useful positions, he enables the forces of 
nature to act for him and accomplish the transform- 
ations his needs require. I open a furrow with the 
iron of my plough, and throw into it grains of 
wheat; moisture and heat set the vegetative pro- 
perties of the seeds in action : all I have done is to 
alter positions and I obtain a harvest of wheat. 
Again, I cast into a blast furnace a mixture of ore, 
coal, and flux, or calcareous stones. I strike a 
match and set light to the fuel. Once more there 
is only a change of positions, but chemical forces 
are set at work and I obtain iron foundinors. In 
all labour, then, objects must be disposed in such 
manner as to make the forces, of nature lend the 
greatest possible help to the work of production. 

Labour, which is always a duty, can never be a 
right. The prosperity of human societies depends 
above all things on the wise direction of labour. 
Let us examine what is favourable to this. 

§ 2. Productiveness ot Labour. 

Since labour is always a pain we must endeavour 
to obtain the maximum of utilities with the mini- 
mum of efforts and pains. As a consequence the 
question how to attain the knowledge of what may 
lead to this result, in other words of what will increase 
the productiveness of labour, is the most important 



Production and Productive Labour. 37 

of any in economy. If considered under all its 
aspects, it may even be said to include every other. 

The causes which increase or diminish the pro- 
ductiveness of labour are very numerous : facts of 
nature, human ideas, knowledge, sentiments, institu- 
tions and laws. Here, in truth, lies the true field 
for the studies of the economist ; it is in this domain 
of human liberty that he can point out the reforms 
which should be effected, the ideal which should be 
pursued. History and statistics supply the facts 
from which he draws his conclusions. The subject 
is a vast one. Not to diverge too widely from cus- 
tomary methods, I can only touch on it in pointing 
out the most important causes which render labour 
productive. 

§ 3. Responsibility. 

Responsibility is the motive power of the economic 
world. 

Just as the mainspring turns the wheels of a 
watch, so the instinctive desire for self-preservation, 
for development, and for perpetuation, impels all 
animate creatures to economic action, from the 
monad, or simple living cellule absorbing in itself 
the substances on which it lives, to man in the most 
wondrous creations of his industry. The stronger 
this spring the greater will be industrial activity ; 
and the greater and better directed industrial 
activity, the more utilities will then be created, the 
greater will be the growth of prosperity. 



38 Elements of Political Economy. 

The problem, then, to be solved, is the means of 
giving to this mainspring a maximum of force. Its 
solution is simple : we must assure to every act a 
treatment proportioned to its deserts ; reward for the 
good, punishment for the bad, gratification and 
comfort to the laborious and thrifty, privation and 
destitution to the idle and prodigal. In this way we 
apply to economic relations the great principle of 
distributive justice. The allotments of rewards in 
schools are an example of the application of the 
principle. The thing, then, which we have to do, is 
to organise responsibility. In the case of animals re- 
sponsibility is brought home in natural ways under 
the rule of natural laws. The ox which should 
sleep throughout the day, or the lion which should 
neglect the chase, would soon die of hunger. Among 
men, however, where freedom of will is paramount 
instead of necessary laws, responsibility has to be 
organised by social laws. The more completely these 
social laws assure to the labourer the fruit of his 
labour, the greater will be the incentive towards 
working long and hard, and the more active will be 
the mainspring of the economic world. 

In his article on political economy in the Ency- 
clopedia Rousseau lays down that " The laws should 
be so framed that labour should be always necessary, 
and never useless." 



Production and Productive Labour. 89 



§ 4. The Influence of Nature on the Productive- 
ness of Labour. 

Some philosophers, such as Montesquieu, Cuvier, 
and Buckle, have believed that the degree of pros- 
perity to which nations attain, very greatly depends 
on the influences of nature. Thus Cuvier writes : — 
" Of varying height and with many branches, small 
limestone ranges, the sources of numerous streams, 
intersect both Greece and Italy. Under the shelter 
of these, in charming valleys, rich in every product 
of living nature, philosophy and the arts sprang into 
being, and here mankind witnessed the birth of its 
most honoured geniuses, while the vast sandy plains 
of Barbary and Africa have always retained their 
inhabitants in the condition of roving: and savas^e 
shepherds." The great naturalist even goes so far as 
to say, " Granite districts produce on all the customs 
of human life quite different effects from those of 
limestone. Board, lodging, and habits of thought 
will never be the same in Limousin or Basse- 
Bretagne, as in Champagne or Normandy." 

Undoubtedly the constitution of the soil, the con- 
formation of the country, and, above all, the climate, 
must exercise a great influence on the labours of 
man, on the produce which he gathers in, and, con- 
sequently, on economic progress. A country without 
mines will produce no metals, and a people living 
far inland will not be able to devote itself to naviga- 
tion. Climates, like those of the polar regions, of 



40 Elements of Political Economy. 

excessive cold, or as in the equatorial, of excessive 
heat, are not favourable to the productiveness of 
labour. Excess of cold diminishes the activity of 
nature ; excess of heat, the activity of man. It is a 
temperate climate that most favours industrial pro- 
gress. As has been well said, " Man is here perpetu- 
ally invited to labour," for here, if nature is generous, 
she is so within limits, and only for those who study 
and understand her. 

The variation of the seasons develops a spirit of 
reflection, habits of foresight, and consequently that 
creation of capital which is a condition of all 
economic progress. In proportion, however, as man's 
empire over nature increases, her influence on his 
condition diminishes. Under the guidance of science 
the power of industry in every country turns local 
resources to advantage, and, thanks to commerce, 
any people can enjoy the products of every kind of 
climate. 

In the ages of barbarism nature makes man ; in 
the ages of civilisation man makes nature. In the 
course of a generation we have seen the same 
country, with the same climate, successively occupied 
by men plunged in the most abject destitution, and 
then by other men enjoying the highest degree of 
prosperity. In Australia, where but lately the abori- 
gines were feeding on carrion and often died of 
hunger, magnificent towns, like Sydney and Mel- 
bourne, are now rising, ornamented with all the 
splendours of civilisation. In America, on the vast 



Production and Productive Labour, 41 

plains where the Indian would have for ever con- 
tinued to live in misery on the uncertain products of 
the chase, the Anglo-Saxons are every day founding 
societies of astonishing prosperity. 

Traverse the world, and it will not be in the 
countries most favoured by nature that the richest 
peoples will be found. It is the right direction of 
labour, rather than the fertility of the soil, that con- 
tributes to wealth. The value of the land varies 
with, that of the men who work it ; it is the intelli- 
gence and energy of the cultivators which make it 
precious. 

The powers of civilised man are becoming more 
and more competent to annul the effects of natural 
differences. The conquests of science in their uni- 
versal diffusion will produce a very similar condition 
of civilisation in every country. Montesquieu was 
right in his assertion : " Bad legislators are those who 
enhance the defects of climate, good legislators are 
those who oppose them." 

§ 5. Influence of Race on the Productiveness 

of Labour. 

It is impossible to deny that aptitudes and inclina- 
tions are different in different races, and that these 
are not all equally ready to devote themselves to 
labour and the perfecting of its processes. Contrast 
the Australian, who will sifbmit to starvation aid 
misery rather than cultivate the earth, and the 
Chinese, who seems to find his happiness in relentless 



42 Elements of Political Economy, 



and unceasing toil. Even among Europeans all 
nations do not bring the same aptitudes to their 
work. Where energy and perseverance are de- 
manded the English are without rivals. The French 
have more taste and dexterity. Americans are the 
greatest adepts in the division of labour and the 
invention of machinery. If regard be had to the 
work done, the Belgian labourer is the least costly of 
any. Further, every country has its specialties : in 
marble, Italians are the best workers; in zinc, 
the Belgians ; in iron, the English, and in silk, the 
French. Extreme cases excepted, education, habits, 
beliefs, institutions and laws — in a word, the causes 
susceptible of modification, exercise on the product- 
iveness of labour a much greater influence than do 
flesh and blood, i.e. than the causes which are 
hereditary and unalterable. 

Man is never sparing of his pains when these are 
properly rewarded. Thus Italians, though they are 
accused of idleness, brave the risk of fever in the 
Boman Campagna, and reap the corn under the 
terrible heat of June. Thus, too, the negro in the 
United States, since he has obtained his liberty and 
the right to hold property, takes care of his hut and 
his crop of cotton ; and even in the middle of Africa 
the blacks cultivate their fields well whenever they 
are in a state of security. In former times, so- 
called inferior races, as the Indians of Peru, and the 
Aztecs of Mexico, have constructed cities, palaces, and 
irrigatory canals, the ruins of which excite astonish- 



Production and Productive Labour. 43 

ment, while they maintained the highest system 
of cultivation in countries which under Europeans 
have become impoverished and depopulated. This 
affords the most convincing proof that in favouring 
production, institutions and laws are more effective 
than blood and race. 

Since man is capable of perfection, to whatever 
race he may belong, he can acquire by means of 
education the greater part of the aptitudes in which 
he may be deficient. 

§ 6. Influence of Philosophic and Religious 
Doctrines on the Productiveness of Labour. 

In proportion as a philosophic or religious doctrine 
is founded on a just conception of man, his destiny 
and duties, it is favourable to abundant production 
of wealth, to its fair distribution and rational 
consumption. Exactly so far as a philosophy or 
creed is contrary to reason, it helps to perpetuate 
misery and injustice. If the economic condition of 
Christians be compared with that of peoples of other 
creeds, the difference is at once apparent. Nor can 
this difference be attributed to the influence of race, 
since many Mussulmans and Hindoos are whites, 
while the barbarous and Mohammedan Circassians 
of the Caucasus are among the noblest branches of 
our race, which certain writers have even called 
" Caucasian." 

Christianity has been favourable to national 
prosperity, because by it labour, simplicity of life, 



44 Elements of Political Economy. 

and justice in social relations, have been brought 
into honour. Again, it has put an end to slavery, 
not by commanding its abolition, but by proclaiming 
to men that they are brethren and equals. Even 
while preaching indifference to riches it has opened 
the sources from which wealth flows. The Christian 
communities which have followed most strictly the 
spirit of the Gospel have enjoyed the most widely 
spread prosperity, and among the Quakers in 
England, as Voltaire has remarked, and among the 
Mennonites in Holland, no poor can be found. 

Notwithstanding the spiritual elevation of his 
monotheism the religion of Mohammed, except among 
the Moors of Spain, has everywhere been opposed to 
economic progress. Its fanaticism has produced 
indolence ; its polygamy, the degradation of women ; 
and the constant theocratic nature of its government 
a diminution of individual energy. 

The religion of China, in which the moral element 
has longed gained the ascendant over the childish 
theogony which it contains, has been most favourable 
to labour by making it a duty, it might even be 
said an act of devotion. Thus on certain festivals 
the Emperor himself guides the plough. In Japan, 
again, agriculture and industry had reached the 
highest pitch of perfection, unaffected by any 
European influences. The fields were admu'ably 
cultivated, and comfort widely diffused. Shinto, the 
ancient religion of the Japanese, was a worship of 
nature of the simplest character, encumbered with 



Production and Productive Labour. 45 

few rites and superstitions, and enjoining simplicity 
and economy not only on the great, but on the 
Emperor himself, and on all men the duty of 
work. 

The aptitude of the Israelites for self-enrichment 
is one of the most curious facts in economic 
history. In former times they converted the barren 
hills of Palestine into a land "flowing with milk 
and honey," the comfortable home of a dense popu- 
lation. Since their dispersion, by their accumulation 
of capital, they have been advancing to the conquest 
of the world throughout which they are scattered. 
With their superiority in this respect race can have 
nothing to do, since their fellow Semites, the Arabs, 
have offered obstinate resistance to all economic 
progress. Their success is the consequence of their 
moral and religious ideas, which have created in 
them a second nature wholly devoted to the produc- 
tion and capitalisation of wealth. In other ancient 
countries labour was despised as the lot of a slave ; 
in Israel, on the contrary, the prophets glorified it 
as the source of all prosperity, while they blamed 
idleness as the mother of vice and suffering. 
Manual labour was considered as a means of im- 
provement, and even the learned were obliged to 
practise it. Sages and their disciples alike guided 
the plough, and took as their maxim " labour and 
learn." Here are some extracts from the Proverbs 
of Solomon : 

"He becometh poor that dealeth with a slack 



46 Elements of Political Economy. 

hand, but the hand of the diligent maketh rich" 
(x. 4). 

" Go to the ant, thou sluggard, consider her ways and 
be wise ; which provideth her meat in the summer, 
and gathereth her food in the harvest" (vi. 6 — 8). 

" Yet a little sleep, a little slumber, a little folding 
of the hands to sleep : so shall thy poverty come 
as one that travelleth, and thy want as an armed 
man" (vi. 10, 11). 

The Talmud, on the Authority of Psalm cxxviii., 
places the man who works above the merely 
pious, and upholds the labour of the hands as 
equally honourable with that of the intellect 
(Berachot, 17). On this subject some sentences in 
the Talmud are truly admirable : 

" Great is labour : whoso gives himself to it is 
nourished, exalted and ennobled." 

" Only he who serves the earth receives its full 
bounty." 

" Rather gnaw carrion in the streets than have 
recourse to charity." 

" Whoso teaches not his son a trade brings him 
up to be a thief." 

Here again is a story from the Talmud : A rabbi, 
carrying a plank from his field, was asked if there 
were no workmen to save him the trouble. He 
replied, " This I do to show the people that labour 
is no disgrace. It is only he who shuns it who is 
dishonoured." Hence the maxim, "Love labour, 
and hate excessive wealth.'* 



Production and Productive Labour. 47 

The regions of the Tigris and Euphrates, now so 
desolate, once formed the Persian Empire, renowned 
in all antiquity for the fertility of its fields and the 
wealth of its towns. This prosperity was due to 
the blessing which Zoroastrism, a religion of great 
purity and elevation, pronounced upon labour. 
Here are some extracts from the Zendavesta in 
praise of toil : 

" Creator of the corporeal world. Pure One ! 
What is the increase of the Mazdaya^nian law ? 

" Then answered Ahura Mazda (Ormuzd, God) : 
When one diligently cultivates corn, O holy 
Zarathustra. He who cultivates the fruits of the 
field cultivates purity" (Vendidad, iii. § 97 — 99. 
Bleek's translation). 

" Creator of the corporeal world. Pure One ! 
What is in the third place most acceptable to the 
earth ? 

" Then answered Ahura Mazda : Where by cul- 
tivation there is produced most corn, provender and 
fruit-bearing trees ; where dry land is watered, or 
the water drained from too moist land." 

" Creator of the corporeal world, Pure One ! 
What is in the fourth place most acceptable to 
the earth ? 

" Then answered Ahura Mazda : Where most 
cattle and beasts of burden are born" (iii. § 11 — 17). 

" He who cultivates this earth with the left arm 
and the right, with the right arm and the left, 
O holy Zarathustra ! to him it brings wealth. 



48 Elements of Political Economy. 

Like as a friend to his beloved, she brings to him 
issue or riches" (iii. § 84 — 86). 

" He who does not cultivate this earth, O holy 
Zarathustra, then this earth speaks to him : Man, thou 
who dost not cultivate me. Always thou standest 
there, going to the doors of others to beg for food. 
Always they bring food to thee, thou who beggest 
lazily out of doors " (iii. § 91—94). 

If some religious doctrines have been singularly 
favourable to economic progress, certain errors have 
been productive of great evils. Such is the case 
with intolerance, that aberration of religious senti- 
ment of which it may be said that it is not only a 
crime but a mistake — a crime against the majesty of 
man, and a great mistake in economy. Thus it was 
intolerance which robbed Spain of the Moors with 
their perfect system of cultivation, and of the Jews 
who created its commerce and procured its financial 
credit. It was intolerance, too, that ruined the 
Belgian provinces in the sixteenth century, and, 
after the revocation of the Edict of Nantes, chased 
from France its most industrious inhabitants. 
Religious liberty, on the other hand, attracted to 
Holland refugees and proscribed persons from every 
country, victims of every kind of intolerance ; it 
thus contributed greatly to the prosperity of the 
united provinces. 



Production and Productive Labour. 49 



§ 7. The Influence of the Moral Sentiments on 

the Productiveness of Labour. 

* 

There is not a virtue which does not lead to true 
wealth, nor a vice which is not an obstacle to well- 
being. As has been well said, " Moral progress 
always brings with it an increase of prosperity. 
But material progress, unless accompanied by an 
equivalent progress in morality, is always the fore- 
runner of decline." The circumstances of the 
downfall of every great empire of antiquity may 
be cited in support of this truth. 

A good conscience in a workman means a good 
piece of work. When the conscience is bad, the 
work will be little and ill done. Prudence leads to 
thrift, thrift gives birth to capital, capital makes 
labour productive. 

Prudence is a mental gift ; it is the seeing future 
events as if they were actually present. "Dig 
your well before you are thirsty," says the Japanese 
proverb. Because they foresee needs yet to come, 
men save a portion of what they produce, and thus 
collect the means of living in greater comfort and 
producing more. The spirit of economy enriches, 
not only families, but states. Prussia, which, in the 
phrase of Voltaire, was only " the desert of the 
Marquis of Brandenburg," has become a powerful 
state, thanks to the spirit of order, economy, and 
intelligent administration, which imbued its kings, 
especially Frederick II., while during the same 

E 



50 Elements of Political Economy. 



period France was being ruined by the extravagance 
of tlie time of Louis XIV., the immorality of the 
Regency, and all the disorders of Louis XV. 

According to Montesquieu, the Caribbees break 
down a tree in order to gather its fruit. Here we 
have improvidence personified. From improvidence 
spring drunkenness and intemperance ; these destroy 
at once the fruits of labour and the aptitude for 
work, and in this way misery is perpetuated. 

Credit is only another word for confidence, and 
confidence depends on the certainty that engage- 
ments will be faithfully observed. Thus this power- 
ful lever of commerce rests on a virtue as its 
support ; where, as in the East, this virtue is not 
present, credit also is not to be found. 

Perseverance, another virtue, is also a great 
economic force. It is by perseverance that the men 
of Zealand have justified their assumption of the 
proud motto Luctor ct emergo (" I struggle and sur- 
vive ") by twice conquering their territory, the first 
time from the sea, the second, from the tyranny of 
Spain. It was perseverance, again, that presided 
at the birth of the United States, when the firsiT 
emigrants had to contend against the climate, disease, 
and the savage tribes. 

Administrative venality and partiality in dispensing 
justice are great obstacles to progress in Hussia. Of 
this the Emperor is not ignorant, but he knows no 
means of remedying the ill. 

As M. Le Play remarks in his Etudes sur les 



Production and Productive Labour. 51 

Oicvriers Europ^ens (p, 4), " The social rank of the 
different classes of workmen is determined by the 
degree of development in them of the feeling of 
prudence." If the Flemish communes were so rich 
and powerful in the Middle Ages, it was because all 
the manly virtues of the labourer prevailed among 
them, assiduity, conscientious workmanship, the 
spirit of economy, intelligence, carefulness, a feeling 
of brotherhood among the members of the corpora- 
tion, and, finally, courage to defend their liberties 
and privileges. 

In his Survey of Political Economy Mr. Macdonell 
makes the following very just remarks : " Wherever 
there is a great store of wealth there must be a 
people living under moral restraint and possessed of 
a code of duty, and a land dotted with bursting 
stackyards, mapped out into well-tilled fields, and 
noisy with the hum of looms and clang of hammers, 
is evidence that there is at hand no small portion of 
the stuff out of which martyrs and heroes are 
formed. Though fine names may not be given to 
the qualifications of a busy people, skilled in many 
crafts and trades, producing articles cheaply and 
well, it is patience and sobriety, and faithfulness 
and honesty, that have gained for them eminence" 
(ch. V. p. 57). 



E 2 



52 Elements of Political Economy. 



§ 8. The Influence of Justice on the 
Productiveness of Labour. 

"Seek first justice, and all things else shall be 
added to you." The truth of this quotation from 
the Gospel can be clearly demonstrated. 

Distributive justice consists in treating every man 
according to his deserts, rewarding the well-doer, 
punishing the ill. This principle, in the economical 
order, leads to the maxim, " To every man according 
to his work." For this maxim to be applied the law 
must assure to every one the full enjoyment of the 
fruits of his labour. Let him who sows, reap, and 
let him who plants the tree, eat of its fruit. You 
have performed your task with intelligence, zeal and 
care ; you are entitled to good lodgment, good food, 
and a provision for your old age. You have been 
idle and careless; want and famine shall be your 
punishment. Such is the will of justice. It is the 
fable of the grasshopper and the ant. 

Men have not been wrong when, in confidence in 
the power of right, they have pronounced the 
celebrated phrase. Fiat justitia, pereat mundus 
(" Let justice be done, though the world perish "), or 
when at the time of the French Revolution, in 
reference to the abolition of slavery, they exclaimed, 
" E-ather perish our colonies than our principle." 

What is absolutely opposed to justice can never 
be favourable to the well-being even of those who 



Production and Productive Labour. 53 

seem to profit by tlie wrong. Thus it was slavery 
which was the main cause of the decline of the 
Roman power. In the early days of the Kepublic 
the earth was tilled by freemen, and everywhere 
there reigned a prosperity which, if simple, was real 
and sound. By dint of constant war this race of 
well-to-do, brave, and vigorous peasants, gradually 
disappeared. The aristocracy invaded their little 
homesteads, as well as the Ager jpuhlicus, or public 
land, and formed vast estates, which they cultivated 
by means of slaves. Livy records this depopulation 
in an expressive sentence : Innumerabilenfi muUitu- 
dinem liherorum cainhtm in eisfuisse locis, quce mine, 
vix seminario exiguo militum relicto, servitia Rowuna 
ah solitudine mndicant. . . . (" Yast numbers of free- 
men used to live in these regions, which now 
remain a nursery for scarce a handful of soldiers, 
and are only saved from absolute solitude by the 
Roman slave gangs.") 

Tiberius Gracchus, when on his way to Spain, 
saw with grief the deserted condition of the fields, 
and afterwards, in his harangues to the people, 
painted it in flaming colours : " The wild beasts of 
Italy have their lairs to which they can retreat, the 
brave men who shed their blood in her cause have 
nothing left but light and the air they breathe ; 
without houses, without any fixed abode, they 
wander from place to place with their wives and 
children. They fight and die to advance the wealth 
and luxury of the great. They are called masters 



54 Elements of Political Economy. 

of the world, and have not a foot of ground in their 
possession." 

In spite of the laws of Licinins and the Gracchi, 
and of all the attempts made to re-establish the class 
of small proprietors, the process of depopulation 
did not stop. Rome was supported by the plunder 
and ruin of the provinces by its proconsuls, and the 
trial of Yerres shows us the hateful brigandage with 
which these were effected. It was under the weight 
of the iniquities by which she lived that Home fell. 
In the words of Juvenal: Bcevior armis luxuria i%- 
ciibuit, mctumque ulciscihcr ordem (Sat. vi. 292). 
("A luxury more ruthless than the sword settled 
upon Rome and avenged the world she had enslaved.") 
When the barbarians arrived they found the empire 
almost depopulated. 

In the United States the curse of slavery was only 
extirpated at the price of the most frightful civil 
war known to history, the death of half a million of 
men, and the loss of five hundred millions (sterling) 
of money. 

When the injustice of laws reaches such a point, 
that the hopes of most people are set on robbery, 
and the most utterly wretched are resorting to crime, 
the society is advancing towards its ruin. The 
greater the exactness with which the economic 
organisation insures the application of justice, the 
more eagerly will men, who naturally make well- 
being their aim, betake themselves to labour. To 
cite a single example : it is to insure this result that 



Production and Prodnctive Labour. 55 

patents are granted to inventors, and authors allowed 
the copyright of their books. 

Besides just laws, there must be just judges to 
apply them. This point is of the first importance. 
How often do we read in works of history that 
"justice caused the kingdom to flourish." "Ze 
royaume multiplie tellement par la honne dfoiture" 
writes the chronicler Joinville, '^ que le domaine, 
cmsive, rentes et revemts die Roy croisscnt tous les 
ans de moiiUy I borrow from Destutt de Tracy 
this wise remark : " Among sensitive beings, whose 
interests often clash, justice is the greatest of 
blessings ; it alone can pacify them without leaving 
to any a cause of complaint." 

§ 9. Civil Laws, especially those as to Property, 
in their Relation to the Productiveness of 
Labour. 

Civil laws should be applications of the principles 
of justice. They must, therefore, assure to every one 
the enjoyment of that which lawfully belongs to him : 
cidque suum — " to each man his own." Such is, in 
reality, the formula of justice. From this principle 
by a direct deduction we reach the most important 
of all civil institutions, that of property, which we 
define as the exclusive right to use an article within 
the limits of reason and law, or, in the admirable 
phrase of the Eoman code, tcsqtie patitur ratio juris. 

Aristotle {Politics, i. 3) well characterised property 
as " an external instrument necessary to man's exist- 



56 Elements of Political Economy. 

ence." Property is necessary to man's accomplish- 
ment of his destiny, because it is the indispensable 
complement of his individuality. Property in all 
the fruits of his work must be guaranteed to the 
worker. This is the decree of equity, and it is 
also the decree of the interests of society. It is 
only the certainty that he will enjoy this legitimate 
reward of his toil that will impel man to work his best 
and his hardest. " Make proprietors and you make 
good citizens," says P. L. Courier. "Nothing can 
be more beneficial than to give the land to the men 
who work it : the more an estate is divided, the more 
it will prosper and improve." 

§ 10. Influence of Systems of Inheritance on 
the Productiveness of Labour. 

Differences in the system of inheritance have 
a considerable influence on men's activity, and on 
the constitution and progress of societies. Tocque- 
ville {DemocTatie en Am4rique, iii. 3) even asserts 
that " whenever human societies undergo any great 
change, hidden among its causes is invariably found 
the law of inheritance." 

An analysis of the motives which impel men to 
production establishes the fact that his daily needs 
are sufficient to keep the workman to his labour, 
and in the case of an exceptionally prudent man, 
to induce him to save a little as a provision for his 
old age : on the other hand, to bring about great 
improvements of which the fruits will only be reaped 



Production and Productive Labour. 57 

after the lapse of 3^ ears, the interests of children 
must be introduced as an incentive. No one will 
plant trees for a stranger to gather their produce. 
As La Fontaine puts it, " It is still worih while to 
build, but to begin planting at my age ! " Thus 
for the creation and preservation of capital the 
institution of inheritance is an essential. 

To maintain and increase the productiveness of 
labour, is it better that all the real property should 
pass to one only of the children, as the English 
law desires, or that it should be shared among 
them all, as under the French code ? The division 
of an estate may sometimes involve inconveni- 
ences, but these are as nothing compared to the 
immense advantage of making as many families 
as possible into proprietors. 

Property is the condition and complement of 
liberty. Ideally, every family should have its house, 
its field, and its instruments of labour, or a title 
representing a share in a common capital — a factory, 
for example, or some other enterprise. By the regu- 
lation of inheritances this ideal is attainable. 

§ II. Influence of Systems of Tenure on the 
Productiveness of Labour. 

Lands are cultivated sometimes directly by their 
owner, sometimes by other persons to whom he 
grants the occupation of them under such differ- 
ent conditions as metayage, leasage, emphyteusis, 
&c. Modes of tenure are favourable to production 



58 Elements of Political Economy. 

in proportion to the completeness with whicli tliey 
assure to the cultivator both the fruits of his labour 
and the benefit of his improvements. Thus tested, 
no system is equal to that of absolute proprietorship. 
Arthur Young, an economist of the eighteenth cen- 
tury well versed in agriculture, says, " Give a small 
proprietor a strip of rock, and he will make it into a 
garden. The magic of property turns sand into 
gold." In the Pyrenees, in Tuscany, on the slopes 
of the Apennines, or at Capri, that shelf of cal- 
careous rocks at the entrance of the Gulf of Naples, 
famous as the retreat of Tiberius — in all these places 
the traveller will see the soil actually created by 
man's labour. Terraces of unmortared stones are 
constructed on the hill-sides : to these earth is 
carried in baskets, and often is carried afresh after 
each violent storm. Vines and olives are then 
planted, and at the foot of these grow corn and 
lupine. The proprietor has created his property 
by the sweat of his brow, and affords us an example 
of what men will do when they are assured of the 
exclusive enjoyment of the fruits of their toil. 
Again, Arthur Young tells us that, " with a yearly 
tenancy a farmer will ruin the finest soil," and the 
misery of the Irish and their wretched system of 
cultivation are his proofs. The cultivator cannot 
be expected to improve the soil if an increase of 
rent continually comes to rob him of the results 
of his improvements. As means of forwarding 
agricultural progress, hereditary tenancy, emphy- 



Prodaction and Productive Labour. 59 

teusis, and long leaseholds compete tlie more closely 
with actual proprietorship in exact proportion to the 
greater security and permanence of the tenure. A 
scale of the different systems of land tenure may 
thus be formed, arranged according to the encourage- 
ment which they give to labour. The order will 
be, in descending scale : — 

(1) Proprietorship vested in the cultivator. 

(2) Hereditary tenancy or emphyteusis. 

(3) Long Leaseholds. 

(4) Metayage. 

(5) Short leaseholds. 

(6) Tenure at will. 

§ 12, Influence of Systems of Rewarding 
Labour on its Productiveness. 

Man will work with so much the more care 
and zeal the more exactly his reward is in pro- 
portion to the quantity and quality of his labour. 
Pay the industrious and the idle workman the 
same wages and it will be to the interest of 
both to do as little as possible. Since activity in 
labour is thus in proportion to the strength of the 
motives which result in it, labourers, compared in 
this respect, can be arranged in the following 
descending scale : — 

(1) Those who keep for themselves all they pro- 
duce. 

(2) Those who have a share in the profits. 



60 Elements of Political Economy. 

(3) Those paid according to the work done. 

(4) Those paid according to the time they are 
supposed to be working. 

(5) Slaves, the produce of whose labours belongs 
to their masters. 

The small proprietor is already in his fields before 
the dawn, and at sunset he is still toiling ; the 
harvest, that is to say his welfare, depends on his 
industry. On the other hand, the idleness of 
government officials is proverbial, and it is so, 
because they are treated the same whatever quan- 
tity of work they do. Lastly, slavery, by taking 
from man his rights of property as well as of liberty, 
has blighted his labours with barrenness, and it was 
slavery which formed the principal obstacle to 
material progress among the peoples of antiquity. 

§ 13. Influence of Systems of Government on 
the Productiveness of Labour. 

"Eiches,'' said J. B. Say, in 1803, "are absolutely 
independent of political organisation." In this 
opinion he was profoundly mistaken. Nothing is 
more favourable to the production of wealth than 
a good government, nothing more fatal than a bad. 
To this the history of all countries and of all eras 
bears witness, and its lessons are better understood 
by Montesquieu when he tells us " countries are not 
prosperous by reason of their fertility, but by reason 
of their liberty;" and by Tocqueville, who writes, 



Production and Productive Labour. 61 

" I do not know that a single example can be cited, 
from the S3rrians to the English, of a manufacturing 
and commercial people which has not also been a 
free one. There is thus a close tie and necessary 
relation between these two things, liberty and 
industry." 

Liberty is the daughter of reason and the mother 
of wealth. 

Despotism finds its ordinary result in decay. 
Never has this been better exemplified than in the 
fall of the Roman Empire. " Thanks to the multi- 
plicity of functionaries," says Lactantius, " there 
were more tax-consumers in the Empire than tax- 
payers, so that the cultivator was ruined by the 
exactions to which he was exposed. Fields were 
deserted, and lands, once tilled, abandoned, till they 
lapsed again into the forest." " The Fiscus,'' says 
Salvienus, writing in the sixth century, " was a 
robbery which completed the ruin of the Roman 
Empire." 

Order, security, liberty, justice, above all, that 
organisation of responsibihty which assures to the 
industrious the fruits of their labours — these are 
necessary conditions of the development of wealth ; 
and a government will advance this development 
in proportion as it guarantees these conditions. 
When, as under the old regime, taxes fine the 
workers and savers, without touching those who 
squander at court the money torn from the culti- 
vators, under such a government prudence is shown 



62 Elements of Political Economy, 

in doing nothing and living from liand to mouth. 
When, as in Turkey, the arbitrary exactions of the 
treasury increase in proportion to the outward signs 
of prosperity, to be or to appear poor is the sole 
guarantee of safety. 

To be convinced that a bad government is the 
worst of scourges it is only necessary to visit the 
Turkish provinces, formerly the richest in the Roman 
Empire. " The populations of these provinces," says 
a traveller, Dr. Lennep, " capable in themselves of 
great progress, are stifled in a general atmosphere 
of malversation and decay. Beggars are everywhere ; 
from top to bottom of the social scale there is 
mendicity, theft and extortion. Little work is done 
at present, and there will be less in the future. 
Commerce is degenerating into peddling, banking 
into mere usury ; every undertaking is a fraud > 
politics are an intrigue, and the system of police 
sheer brigandage. The fields are deserted, the 
forests devastated, mineral riches neglected, and the 
roads, bridges, and all public works falling into ruin." 
The grass withers in the footprint of the Turk, not 
because the Turk is worse than his neighbours, but 
because the Turkish government is detestable. 

In the reign of Louis XIV. the same cause pro- 
duced the same effects. The Marechal de Vauban, 
of whom Saint Simon said that he was "the most 
honest man of his time, with a passion for the 
public good amounting to madness," wrote, " If any 
one is well off he must hide what little comfort he 



Production and Productive Labour. 63 

has so carefully that his neighbours have no know- 
ledge of it. He must even push precaution so far 
as to deprive himself of necessaries lest he should 
appear to be in easy circumstances " {La Dime 
Toyale). 

We pray in the Litany to be delivered from 
" plague, pestilence, and famine," and from " battle 
and sudden death," but these are only passing evils, 
soon repaired by the fruitfulness alike of labour and 
marriages. A bad government is a permanent evil, 
and, so long as it lasts, the ills it produces go on 
increasing. Montesquieu has expressed himself ad- 
mirably on this point. " There are two kinds of 
poor people," he tells us, " the first made so by the 
harshness of the government, and thus incapable of 
almost any virtue, since their poverty is part of their 
slavish lot ; the second only j)oor because they have 
despised or never known the conveniences of life, 
and capable of great things since their poverty is 
a part of their freedom " {Esprit des Lois, xx. 3). 
Elsewhere, to explain how liberty enriches a people, 
the same author writes, " As a general rule a nation 
which is in bondage works rather to preserve than 
to acquire, a free nation rather to acquire than 
preserve." 

§ 14. Influence of Democracy on the Produc- 
tiveness of Labour. 

In passages not easily forgotten Tocqueville has 
shown the influence which democracy exercises on 



64 Elements of Political Economy. 

the production of wealth. " Every cause," he writes, 
" which gives force in the human heart to the love 
of the goods of this world, helps to develop commerce 
and industry. One of these causes is equality ; and 
this favours commerce, not directly by giving men a 
love for business, but indirectly by strengtheniug and 
extending in their minds the love of comfort." 

Despite the turmoils inseparable from freedom, 
the democratic communities of Greece, of Flanders, 
and of Italy, all enjoyed exceptional prosperity and 
great renown. The Florentine historian, Machiavelli, 
gives as the reason that ^'the virtue, morality, and 
independence of the citizens were more effective in 
strengthening the state than their dissensions in 
weakening it. A little agitation lends energy to 
the mind, and the real promoter of human prosperity 
is, not so much peace, as freedom." 

Slavery brings about decay by diminishing activity. 
" When everything rests crushed beneath the yoke," 
says Rousseau, " it is then that everything perishes 
and that the chiefs destroy the people." " Uhi solitudi- 
nemfadunt, 'pacem ap'pellant — they make a wilderness 
and call it peace " (Tacitus). 

§ 15. Influence of the Freedom of Labour upon 
its Productiveness. 

Guided by self-interest, where he has any light, 
man will devote himself to the most profitable form 
of labour. It follows that the more labour is free 



Production and Productive Labour. 65 

the more it will be productive. Freedom of labour 
Comprises : — 

(1) Freedom to choose a trade. Of this mono- 
polies and guilds are the negation. 

(2) Freedom to labour wherever one pleases : no 
privileges for certain districts ; freedom in the choice 
of a dwelling. 

(8) Freedom of partnership. 

(4) Freedom to buy and sell to the best advantage : 
freedom of trade. 

(5) Freedom to lend money : abolition of the laws 
against usury. 

All these liberties, proclaimed by the French Revo- 
lution and adopted in England, have since the end of 
the last century successively gained a footing in the 
different civilised countries. Hence has resulted an 
extraordinary increase in the activity and productive- 
ness of labour, 

Nothinof contributes so much to render labour 
productive as the free competition of the labourers. 
It is a pacific contest to see who will sell the most 
and with the greatest profit. Every one is on the 
alert, racks his brains, and tries to devise some 
saving, some improvement, or some new piece of 
machinery. The punishment of those who fail is 
embarrassment or misery ; the reward of the 
successful comfort and wealth. 

Among animals the struggle for existence is 
decided by strength of claws and teeth ; among 

P 



6Q Elements of Political Economy. 

barbarians by the sharpness of hatchet and javelin ; 
among civilised men by superiority in labour, in 
invention, and in capital. 

§ i6. Influence of Association and Co-operation 
on the Productiveness of Labour. 

To extinguish a fire twenty or thirty men stand 
in a line, forming a chain from the water to the 
place of the conflagration ; with one hand they 
quickly pass along full buckets, and with the other 
return the empty ones. In this way they convey 
twenty times the amount of water that could be 
brought by each man running between the foun- 
tain and the burning building ; and here we have an 
illustration of the advantages offered by association. 

If a boat has to be launched ten men successively 
pushing will never stir it ; if they all push together 
she is floated at once. Here we have an illustration 
of the advantages of co-operation. 

When arranged in an intelligent and orderly 
fashion men succeed in doing what a hundred times 
the number of isolated individuals would never 
accomplish. This important truth is symbolised by 
the Roman emblem of a fascis or bundle, and by 
the Austrian device Virihus unitis, " By united 
strength." 

The division of labour is based upon spontaneous 
co-operation. The baker who supplies the teacher 
with bread, and the teacher who instructs the baker's 
children, are co-operating in a common work^— the 



Production and Productive Labour. 67 

furnishing man with the food of the body and the 
food of the mind. Although they neither know nor 
intend it, in reality they are partners. 

§ 17. Influence of the Division of Labour on 
its Productiveness. 

The division of labour consists in parcelling out a 
piece of work among those who have to execute it, in 
such a manner that each workman shall always do the 
same work, or even only a part of the work. A black- 
smith forges nails all the year, and with these nails 
procures, by means of exchange, everything he needs. 
This is the first form of the division of labour. 

Again, eighteen different operations are needed 
to make a single pin, and each of these is intrusted 
to a special workman. This is the second form of 
the division of labour. 

The principle of the specialisation of functions is 
of sp ontaneous application. Every one is disposed to 
do the work for which he has an aptitude, and every- 
body else profits by his doing it. In the siinplest 
form of life, as seen among savages, the man devotes 
himself to hunting, the. woman prepares the food 
and clothing. 

As human industry progresses, though most of the 
work continues to be done in the bosom of the family, 
certain separate occupations make their appearance, 
such as those of the blacksmith, the worker in 
copper, and the potter. Still later, speciality of 
occupation, when combined with hereditary succes 

F 2 



68 Elements of Political Economy. 

sion, as in Egypt, gives rise to caste ; when, as in 
the Middle Ages, with privileges, to craft guilds. 

The division of labour greatly increases its pro- 
ductiveness, and thus proportionately diminishes the 
price of produce. Pins at from sixpence to ninepence 
a thousand, playing cards for sixpence a pack, watches 
for from twelve shillings apiece, are all examples of 
this cheapness, which will seem wonderful on reflec- 
tion. These advantages of the division of labour 
proceed from different causes, of which the following 
are the chief: — 

(1) Increase of skill in the workman from repeat- 
ing the same process. 

(2) Saving of the time lost in getting to work, 
whenever the occupation and tools have to be 
changed. 

(3) Economy effected in the use of tools, since 
each workman now only requires one, whereas, when 
there is no division he needs a different tool for 
each several operation. 

(4) More advantageous employment of the dif- 
ferent aptitudes of the workmen, since each is 
constantly employed on what he does best ; and a 
notable saving in the cost of labour, inasmuch as 
where all payments are in proportion to the diffi- 
culty of the work, the simpler processes can be 
intrusted to weaker or less skilful hands, often 
unhappily to those of women and children, and so 
are less highly paid. 

(5) More frequent employment of machinery to 



Production and Productwe Labour. 69 

replace the workmen, wherever any part of the 
work can be reduced to an identical and regular 
movement. 

(6) The tendency of division of labour to promote 
equality by a balance of functions. If the strong 
and the weak are set to the same work the strong 
will accomplish twice as much as the weak, and, 
since the fruits of labour are its legitimate reward, 
will be twice as well off. On the other hand, if 
they agree to divide their labours between them, 
the strong man will cultivate the earth for both, 
the weak will prepare the food and clothing, also 
for both. In this way, in the first place, both will 
be better fed and better clothed, and, in the second, 
since the services each renders to the association 
balance, they can be equally rewarded. Where ad- 
vantage is taken of the diversity of men's aptitudes, 
these can be made to contribute equally to the 
general production. 

The division of labour can be applied with the 
greater completeness according to the greater extent 
of the market for the produce, the facility of ex- 
change, and the perfection of the means of com- 
munication. In a village where the customers are 
few the farrier will do all kinds of work in which 
iron is employed. In a large town, work in iron 
will be divided among the farrier, the stove-maker, 
the locksmith, and the makers of tools and safes. 

When roads are bad and ill-protected, exchanges 
are infrequent and difficult, and every group of 



70 Elements of Political Economy. 

men lias to produce on the spot everything which 
it consumes. In the villas of Charlemagne the 
estate provided food, the women spun and wove 
the wool and flax for clothes, and men made their 
own tools and agricultural implements. Nowadays, 
thanks to railways, steamers, and the good under- 
standing that prevails among nations, the whole globe 
forms a single market, and in the workshop of the 
world every nation has to apply itself to furnish the 
produce which the soil and climate allow it to obtain 
at the smallest cost. 

The market for a given class of goods, that is to say 
the portion of the world within which they can be 
sold, is of less or greater extent according to the 
bulk and weight of the goods when compared with 
their value. The market for coal is limited because 
the cost of transport is great. The market for 
watches and silks embraces the whole world. 

Men have not all the same aptitudes, and, in 
harmony with this, different aptitudes are required 
by different tasks. In each kind of labour, then, 
a workman should be employed endowed with the 
faculties this labour requires. Iron should be forged 
by strong arms; a watch spring be constructed 
by a workman with delicate fingers; carving in 
wood be done by a man with taste; the direction 
of an enterprise be intrusted to the thoughtful 
and educated ; in this way labour will attain a 
maxirnum of productiveness. According to our 
English maxim we shall have "the right man in 



Production and Productive Labour. 71 

the right place," or, as Cicero long ago perfectly 
expressed it: Ad quas res aptissiini erimus, in its 
potissimitm elahorahimus — " We shall be choosing for 
our occupation the employments for which we are 
best fitted." 

In order to attain to division of labour between 
geographical regions, we must apply free trade be- 
tween the different countries. From each of these 
we should demand the products for which nature has 
given it special advantages : tea from China, coffee 
from Brazil and Java, iron from England, wine from 
France, wheat from the black lands of the Danube 
and of Russia, from the United States cotton, from 
India rice. In this way mankind in general will 
obtain the most abundant satisfaction of its needs 
in exchange for the smallest amount of effort. 
Division of labour when applied to the whole globe 
makes all men partners in the universal workshop 
from which there issues the ever-increasing welfare 
of mankind. 

Alarm has been felt at the consequences of the 
division of the details of labour. What is to become 
of the workman who shall devote his whole life to 
making pins' heads ? This was the indignant question 
evoked by Adam Smith's now classic illustration. 
This idea is elaborated by Tocqueville with his 
usual prolVindity. " In proportion," he writes, " as 
the principle of the division of labour receives more 
complete application, the workman will become more 
and more feeble, limited, and dependent. If art 



72 Elements of Political Economy. 

progress, the artisan will retrograde. The employer 
will approach ever more nearly to the administrator 
of a great empire, the workman to the condition of 
a brute. The difference between them will increase 
every day " [La D^mocratie en Am^riqyie, vol. ii. 
p. 20). Happily the fears Tocqueville expresses 
have not been realised. 

The division of labour cannot be carried very 
far in agriculture, inasmuch as the tasks to be 
performed, the sowing and reaping, succeed one 
another. Yet the agricultural labourer is far from 
being more intelligent than the manufacturing ; and 
it is in manufactures where the division of details 
is pushed to an extreme, in the making of watches 
and fire-arms, for instance, that the most intelligent 
workmen are to be met. It is very fortunate that 
this is the case, since the workman must never 
be sacrificed to the perfecting of the work, inasmuch 
as the goal to be attained is the improvement and 
welfare of the human race, and not the mere increase 
of wealth. 

Nowadays, however, specialisation seems carried 
too far. He who works with his hands should 
be left some leisure for head-work ; and he who 
works with his head should have some hours for 
manual labour. Thus Mr. Gladstone cuts down 
trees, and Lincoln, the President of the Uiaited 
States, used to chop wood. To insure health both of 
body and mind, both the one and the other must 
be given proper food and exercise. 



Jr'roduction and Productive Labour. 73 

The advantages of the division of labour were 
remarked by the ancients. Plato, Xenophon, and 
Dionysius of Halicarnassus all speak of them. Plato 
praises the Egyptians for having always intrusted 
the same kind of work to the same workman, 
thereby making him more skilful ; and we read in 
his Bcpitblic (book ii.) : " Would things go better 
if each man had several crafts, or if each confined 
himself to his own ? Obviously, if each man confined 
himself to his own." 

The following passage from the Gyropcedia shows 
that Xenophon perfectly understood the advantages 
of the division, and even of the sub-division, of 
labour, as well as the causes which occasion or re- 
strict it. " In small cities the same workman makes 
beds, doors, ploughs, and furniture ; and often even 
builds the houses. A workman occupied with so 
many tasks cannot succeed equally well in all. In 
a large town, on the other hand, where a number 
of the inhabitants have the same needs, a single 
craft will suffice for an artisan's support. Sometimes 
even he will only exercise one part of his craft, as 
when one shoemaker makes soles for men and 
another for women ; or one gains a livelihood by 
stitching them, another by cutting them out. Ac- 
cording to the nature of things a man whose toil 
is limited to a single kind of work will excel in 
this kind." 



74 Elements of Political Economy. 



§ i8. Influence of Science Applied to Manufac- 
ture on the Productiveness of Labour. 

Virgil sang, Felix qui potuit rertcm cognoscere 
causas — " Happy is lie who lias knowledge of the 
causes of things," and, in very truth, the better he 
knows them the better he ,will be able to profit by 
them to his own advantage. In the words of 
Bacon, " Knowledge is power," or as the French 
philosopher, Victor Cousin, expresses it : " In in- 
telligence we have the primitive capital which 
contains and produces all others." 

Nothing contributes more to increase the pro- 
ductiveness of labour than the application to 
it of science, that is to say of observation of 
the facts and laws of nature. Of this the history 
of economic progress furnishes a proof at every 
step. 

Primitive man observes that in the forest two dry 
branches when rubbed against each other by the 
wind, ignite. Imitating the operations of nature, he 
bores a hole in a piece of light, dry wood, and in 
this hole turns the point of a piece of very hard 
wood rapidly round till a flame shoots up. Here 
we have the discovery of fire, perhaps the greatest 
which man has ever made, a discovery which at 
once raised him above the level of the animals. Of 
the point of wood he has made an emblem to 
be worshipped, and of the flame a supernatural 
power — among the Aryans the god Agni. The 



Production and Productive Labour. 75 

Prometheus of the Greeks, who stole fire frora 
heaven, is the PramatTia of primitive India, the 
point of wood, the rotation of which creates the 
flame (from the Sanskrit root math, " to rub "). 
At Rome the sacred fire was kept up by the 
vestals, and the same is the case in Peru. It may 
only be relighted by means of the friction of sticks 
of wood. 

A man picks up a flint and makes it into a 
hatchet. With this tool in his hand he sallies 
forth to conquer the world, as do the American 
squatters to this day. Later on he observes that a 
bent branch, with its two ends tied with a string, 
possesses an elastic force which hurls a dart to a long 
distance. Here we have him armed with a bow, 
with which he procures much more game than with 
the boomerang — the sole weapon known to the 
Australians and to prehistoric men. Again, he sees 
a tree floating on the water, and concludes that by 
hollowing it out he can place himself in it and move 
along the surface of the waves. He does so, and 
navigation is invented. Once more he perceives 
that by fashioning the pieces of stone with which 
he meets into particular shapes, he can use them to 
hollow wood and to wound and kill animals ; he thus 
makes himself knives, saws, and javelin heads, either 
in flint or obsidian. After a long interval of time 
he learns the use of metals, and replaces these tools 
and weapons of stone, at first by copper and bronze, 
afterwards by iron. In this way, after an incalculable 



76 Elements of Political Economy. 

series of happy chances, observations, deductions, 
and trials of every kind, man has arrived at the 
possession of a metal hatchet or arrow-head. It is 
from this point that the industry of civilised aces, 
really dates. Starting from this, observations are 
grouped together systematically till they become 
sciences, and chemistry, physics, mineralogy, and 
mechanics multiply their discoveries, and water, 
wind, steam, and electricity lend to man's feeble 
arms the aid of their colossal powers. 

Every process of production in agriculture, in 
manufactures, and in the means of transport is 
continually being perfected by the application of 
new scientific discoveries. The progress of the 
useful arts may be summed up in the single 
sentence, " every industry becomes a science." A 
comparison of the widely different degrees of welfare 
enjoyed by different races confirms the truth of 
this observation. The savasfes of Australia live in 

o 

the most terrible destitution in the same country 
in which Englishmen are overflowing with wealth. 
The former know only how to use their hands, the 
latter, under the guidance of science, oblige the 
forces of nature and properties of matter to help 
them in prod action. The inhabitants of the United 
States are in every respect better provided than 
those of Brazil. They make greater use of machinery 
and scientific processes than do the Brazilians, and 
this because among Americans knowledge is much 
more widely diffused. 



Production and Productive Labour. 77 

Progress in the social sciences, philosophy, morals, 
law, political economy, and politics, enables man 
to gain a better knowledge of himself, to fulfil 
his duties, to respect justice, and to organise society. 
It thus helps to favour the production of wealth 
fully as much as do the natural sciences. Hence 
we may conclude that a country desirous of in- 
creasing its prosperity should cultivate all the 
sciences, and shrink from no sacrifice necessary to 
forward their advance or diffuse the knowledge of 
their discoveries. 



§ 19. Influence of Instruction and Education on 
the Productiveness of Labour. 

This point has been admirably elucidated by an 
Italian economist, Luigi Cossa. Instruction and 
education aid in increasing the productiveness of 
labour by augmenting, and, still more, by giving a 
better direction to the employment of man's powers. 
To this end there is needed in the first place a 
general and " humane " education ; in the second, 
one of a more special and professional character. 
In each of these the bodily, mental, and moral 
faculties must alike be exercised and cultivated. 

The bodily faculties are maintained and improved 
by hygienics and by gymnastics, as the Greeks of 
old so admirably understood. Thus in the Apologue 
of Procidus, Virtue says to Hercules, " Do yon wish 
your body to be strong ? Remember to accustom 



78 Elements of Political Economy. 

it to the governance of the soul, and to exercise 
it amid fatigue and sweat." 

Intellectual culture, in so far as it aims at 
increasing the productiveness of labour, in the first 
place, must exercise the attention, the memory, and, 
above all, the reasoning powers ; in the second, 
must instil a knowledge of the laws both of the 
physical and moral world, which wield so great 
an influence over economic activity. Lastly, the 
cultivation of the moral faculties should stimulate 
the practical virtues, such as the love of work, 
forethought, and the spirit of thrift ; combat vicious 
inclinations, such as idleness and prodigality, and 
aim at strengthening the whole character so as to 
overcome the obstacles of every kind which impede 
the path of industrial progress. 

To diffuse professional education special institu- 
tions must be organised, such as schools of mines, 
colleges of agriculture, and technical and industrial 
schools of all descriptions. Every expense incurred 
with this object will be repaid a hundred fold by the 
increase of wealth. For the vast majority of men, 
however, as J. S. Mill remarks, the greater aim of 
all mental cultivation should be the development of 
that common sense which will teach a sound appre- 
ciation of the circumstances amid which they live, 
and of the consequences which wait upon their 
actions. 

As an illustration of the manner in which the 
ancients understood mental and bodily education, 



Production and Productive Labour. 79 

we may cite the example of Marcus Aurelius. This 
emperor went about his palace in the robe of a 
philosopher, slept on a skin stretched on the earth, 
studied philosophy, jurisprudence, rhetoric, geometry, 
and music, and at the same time devoted several 
hours in every day to such bodily exercise as tennis, 
running, riding, wrestling, and even boxing. 

§ 20. Obstacles Opposed by Ignorance to the 
Productiveness of Labour. 

K it be true that knowledge is the principal 
source of our welfare, the greater part of our mis- 
fortunes must be caused by ignorance. Remember- 
ing how earnestly man pursues his good, it is plain 
that did he know clearly in what it consists, and 
above all how it is to be reached, he would certainly 
attain all the happiness of which life on this earth 
is capable. But amid the intricacies of social life, 
man fails to discern where his true interest lies, and, 
too often, when there are no just laws to oppose 
him. he is ready to sacrifice the good of others to 
his own selfishness. 

Among carnivorous animals the strong devour 
the weak. Among men, since cannibalism has 
proved insufficient, the strong have found a more 
profitable way of using the weak than eating them, 
this is, to force them to labour, while depriving 
them, by different methods, of the fruits of theii 
toil. Hence come slavery, war, revolutions and all 



80 Elements of Political Economy. 

the train of miseries which wickedness and violence 
have let loose upon mankind. 

In ancient times robbery was held the most 
honourable way of acquiring wealth. This is plainly 
shown by a passage from an heroic song of Tyrtseus, 
the patriot poet of Greece. " Everywhere," he sings, 
"we reign as masters. Wherever we approach all 
things are ours. We reap the vintage with our 
lances, our labour is done by our swords." Aristotle 
considers war and slave-hunting as legitimate 
methods of acquiring wealth. " The art of war,'* 
he writes, " is a natural method of acquisition. 
War is a kind of hunt for such beasts and men as 
are born to obey, and yet refuse to be enslaved" 
{Politics, i. 5). In a phrase, stamped with all the 
sharpness of a Roman medal, Tacitus shows us the 
same idea prevailing among the Germans : Nee arare 
terram aut exspectare anmim tarn facile persiiaderis, 
qiiam vocare hostem et vulnera mereri. Pigrurn qnin 
immo et iners videhtr siidore acquirere quod possis 
sanguine parare {Germania, xiv.). — " Nor are they 
as easily persuaded to plough the earth and 
to wait for the year's produce as to challenge an 
enemy and earn the honour of wounds. Nay, they 
actually think it tame and stupid to acquire by the 
sweat of toil what they might win by their blood." 
Despite the high aptitudes of their race and the 
excellence of their political and communal institu- 
tions, the Germans remained barbarians until the 
introduction of Christianity. Robbery maintained 



Production and Productive Labour. 81 

a perpetual state of war both between peoples 
and tribes, just as among the Redskins of North 
America. 

Throughout antiquity, and, desjaite the teaching 
of the Gospel, throughout the Middle Ages, the 
sword of the warrior was glorified, and the labourer's 
hoe despised. All these fatal errors still linger in 
men's minds, and from them proceed national 
antagonisms, war, and the spirit of war, and that 
curse, perhaps the greatest of all, an armed peace. 
This armed peace, it has been calculated, if the loss 
of the labour of some three millions of soldiers and 
sailors be included, costs the civilised countries some 
four hundred millions sterling a year. What a 
fruitful source of misery would be dried up if nations 
could be led to understand that they have no 
interest in ruining and enslaving themselves in 
order to filch a province or an estuary ! A single 
error expelled from the brains of men, and, above 
all, of sovereigns, would suffice to transform the lot 
of mankind. 

The obstacles to international trade, wars of 
tariffs, the unproductive and immoral expenditure 
of private persons, the abuses of speculation, the 
misconception of charity, bad taxes, the vicious 
distribution of wealth, the ill uses to which it is 
put by states and unions — all these are so many 
impediments to welfare which find their causes 
in as many economic errors. Peace, justice, and 
brotherhood are to the interests of all : as soon as 

• G 



82 Elements of Political Economy. 



this truth shall be more clearly perceived, the 
causes of misery will diminish. Whoever is anxious 
for man's welfare should strive to dispel ignorance 
and root out error. 



CHAPTER IV. 

GROSS PRODUCT, NET PEODUCT, AND THE COST 
OF PRODUCTION. 

Gross product is the total of all the commodities 
produced by an individual or nation ; net product, 
the amount which remains available, when deduction 
has been made for the consumption necessary to create 
fresh gross product. This deduction, these necessary 
advances, constitute the cost of production. 

I harvest a hundred quarters of corn — this is 
my gross product. But in order to obtain a similar 
crop the next year, I must keep myself in food, and 
pay for clothing, hire of tools, manure and other 
articles I consume. These will cost me the price 
of fifty quarters — here we have my cost of produc- 
tion. Deducting then from my crop of one hun Ired 
quarters, fifty quarters for expenses, I shall have left 
fifty quarters, and these constitute my net product. 

The productiveness of an industry varies with the 
amount of its net product ; but, as Adam Smith has 
remarked, it is the gross product which is the more 
important for the nation, for it is on the mass of 



Production and Productive Labour. 83 

commodities destined for consumption that the 
nation is supported. By dividing, in the case of 
any country, this total mass by the number of the 
population, a figure will be obtained which will give 
an idea of the average of individual welfare. The 
net, as distinguished from the gross product, is the 
support of all persons not directly engaged in any 
business, such as stockholders, officers of govern- 
ment, doctors, barristers, &c. It is in England that 
this net product is greatest, for it is in this country 
that the greatest number of people are found outside 
the occupations which have directly to do with 
matter. The net produce of a nation is that part 
of the total produce which is not necessary for 
reproduction. It is this part which economy 
can capitalise^ i.e. turn into capital by using it 
to create fresh instruments of labour: it is this 
part which is so often frittered away in foolish 
extravagance. 



CHAPTER V. 

CAPITAL. 

§ I. Different Kinds of Capital. 

The third factor in production is capital, which 
may be defined as any product of labour saved and 
employed for fresh production. Capital is thus, as 
has been said, accumulated labour. A spade, a t^aw, 

G 2 



84 Elements of Political Economy. 

a plough are all capital : men's hands have made 
them, and now employ them for the creation of 
commodities. 

All wealth is not capital. Thus the earth, our 
chief riches, cannot be reckoned as capital, since it 
is not the work of man. A beautiful hunter is 
wealth ; it is not capital, since it is not employed in- 
production. It is the character of the employment 
which determines whether a thing is or is not 
capital. Thus the same horse, if used for carrying 
letters, becomes capital, since it contributes to the 
production of commodities. 

Capital is not productive of itself. Labour is 
the only active force. But labour cannot produce 
abundantly without the help of capital. If a man 
scratched the earth with his nails, he would never 
draw from it a subsistence ; but armed with the 
spade or plough he need want for nothing. The 
qualities, aptitudes, and knowledge of the con- 
tributors to production may be considered as 
immaterial capital, since they are the results of 
past labour applied to new. Labour, which is often 
called ''the poor man's capital," is not really capital. 
Labour is an act, capital the result of an act. 

Capital is divided into fixed and circulating. Fixed 
or sunken capital is capital not consumed in each 
operation of production. It subsists, is used for 
successive operations, only renews itself slowly, 
and yields a profit without changing owners. This 
kind of capital comprehends : (i.) buildings destined 



Production and Productive Labour. 85 

for manufactures ; (ii.) machines and implements ; 
(iii.) improvements absorbed by the soil, such as 
inclosures, hedges, galleries in mines, &c. 

Circulating or floating capital is consumed at each 
operation and reappears transformed into new pro- 
ducts. At each sale of these products the capital 
is represented in cash, and it is from its transfor- 
mations that profit is derived. Floating capital 
includes : (i.) raw materials destined for fabrication, 
such as wool and flax ; (ii.) products in the ware- 
houses of manufacturers or merchants, such as cloth 
and linen ; (iii.) money for wages, and stores. 

On a farm the implements of husbandry and 
beasts of draught that work them are the fixed 
capital ; the cattle for sale, the crops and the money 
in the cash-box, the circulating. The difference 
between the two forms of capital depends on the 
destination for which they are intended. Coin is 
fixed capital for a whole country, just as a railroad ; 
for the manufacturer it is circulating capital. Wages 
to the master who pays them are circulating capital, 
to the workmen to whom they are paid they are 
merely incomings. 

In each kind of industry a normal proportion 
exists between the two kinds of capital. A banker 
or a merchant possesses only circulating capital. 
On a railroad the capital is nearly all fixed. 

It is unsafe for a manufacturer to have an 
insufficient floating capital, for this obliges him to 
depend largely on credit, which may be his ruin. 



86 Elements of Political Economy. 



For a country it is unsafe to increase too rapidly 
the amount of fixed capital. If this be done there 
results a crisis such as that of 1847 in Europe, and 
those of 1856 and 1873 in America, all of which 
arose from the construction of too many railways. 

J. S. Mill was inaccurate in his assertion, 
" industry is limited by capital." On the contrary, 
certain inventions, and even certain combinations, 
have the effect of greatly increasing the power of 
industry by diminishing the amount of capital it 
need employ. Thus, as we have seen, the division 
of labour permits a great economy of implements. 
A steam engine, again, for navigation, while obtain- 
ing the same motive power, costs and burns much 
less than thirty years ago. It is especially by the 
more scientific employment of the forces of nature 
that the power of industry has been increased. 

Capital by immobilising the labour of to-day saves 
that of to-morrow. In primitive times a Rebecca 
Q-oes to the well to fetch water which she carries 
in a pitcher on her head. Here the pitcher is the 
only capital employed, but the journey to and fro 
consumes much time. Later on, a well is dug and 
a pump built. The capital sunk is greater, but the 
daily labour much less. At last, and at considerable 
cost, waterworks are constructed. The capital em- 
ployed in making the conduits, &c., is now ten or 
twenty times greater ; but a tap has only to be 
turned, and more water is procured than Rebecca 
could have fetched if she had run about all day. 



Production and Productive Labour. 87 



§ 2. The Formation of Capital. 

Capital is the offspring of saving. If the means 
of subsistence for three days are procured by the 
labour of one, and the two days of leisure are 
employed in making a spade, with which more 
produce can be obtained from the earth and in less 
time, the amount of spare time will be further 
increased, and it will be more easy to construct 
fresh implements. Every step in advance renders 
it easier to make still greater strides. This example 
supplies a key to all the mysteries of the creation of 
capital. For the spade to be made, the previous 
labour must have left a surplus, which is the net 
produce, and for this surplus to be employed, not in 
idle enjoyment, but in the construction of a useful 
implement, the labourer must possess the virtue 
of prudence to induce him to sacrifice a present 
enjoyment to a future gain. 

To put by wealth for the future constitutes 
saving, but to consume this wealth in making an 
article which will enable future commodities to be 
produced with less exertion is the best form which 
saving can take. To save by creating capital is thus 
no mere abstention from consumption, it is consump- 
tion so regulated as to give birth to an instrument 
which will increase production, and consequently 
consumption also. During the two days devoted 
to making the spade sustenance is consumed. If 
the time had been passed in amusement, exactly the 



88 Elements of Political Economy, 

same amount would have been consumed. The 
difference is that the saver, thanks to his spade, 
is better off for the future, while the spendthrift 
must continue to scratch the earth with his hands. 
The error is thus manifest of those who believe that 
the saving which creates capital is a check on the 
consumption and circulation of wealth, or, in the 
popular phrase, is " bad for trade." 

The crowd curses the avaricious miser and praises 
the spendthrift with its usual folly. Miser and 
spendthrift are alike foolish, but the first only- 
wrongs himself, the second harms others also. 

The creation of capital by saving will increase 
with every increase of the productiveness of labour 
and of men's inclination to thrift. Where a day's 
labour produces a bare day's sustenance, the creation 
of capital by saving is an impossibility. As soon, 
however, as labour becomes more productive so that 
one day's work produces enough sustenance for three, 
there is a net produce available of food for two 
days. This food can be made the means of pro- 
ducing instruments of labour, and it will be used 
for this purpose if the owner of it is disposed to 
save. This disposition is the result of habits 
acquired in childhood, at school for instance, of the 
customs of the country, of public opinion, of the 
safety and facility of investment, and lastly of the 
profits which investments can return. 

Saving is permanent and really useful to society 
only when it results in the creation of fresh capital. 



Production and Productive Labour. 89 

The greater the destitution of an individual or 
country, the greater are at once the necessity and 
the difficulty of saving. Hence the obstacles a poor 
nation has to encounter in escaping from its des- 
titution. On the other hand, the possession of a 
capital to begin with, by increasing the productiveness 
of labour, facilitates the acquisition of fresh capital. 
Hence the increase of national wealth advances at 
an accelerating speed, and " to him who hath, more 
is given." 

It is the spirit of economy shown in the creation 
of capital which has successively raised Holland, 
England, and the United States to power. It is 
an ignorant prodigality, shown in the destruction 
of capital, which completed the ruin of Spain 
from the time of Philip II. to the end of the last 
century. 

§ 3. Tools and Machinery, 

Among the objects which constitute capital it 
is especially tools and machines that render labour 
productive. Aristotle speaks of man as a "political 
animal," i.e. as suited for a social life. Adam Smith 
remarked that " man is the only animal that makes 
exchanges." Franklin speaks of him as ''a tool- 
making animal." Thus it is from association, from 
exchange, and from tools that mankind derives its 
power over nature, or, in other words, its welfare 
and civilisation. 

Everything over and above man's teeth and nails, 



90 Elements of Political Economy. 

that assists labour, is a tool. A machine is a tool, 
only it is a tool set in motion, no longer by human 
muscles, but by the forces of nature, by a ** motor." 
Thus, as has been shown, the history of the 
progress of tools is the history of the progress 
of civilisation. 

Industry has had recourse to motors of ever 
increasing power, and ever better adapted to its 
needs, first to the domesticated animals, then to 
water, then to wind, then to steam, then to 
electricity, which last is as yet in its infancy. 

The advantages of machines are many and 
great. They may be briefly enumerated as 
follows : — 

(i.) They bring into man's service forces of almost 
limitless extent. It is reckoned that the power of 
the machinery worked by steam in the civilised 
countries is equivalent to that of fourteen million 
horses, or of more than two hundred and eighty 
million slaves. Besides this there are in the world 
locomotives with a total power of twenty million 
horses, and steam vessels of another four million. 
The horse power of these calculations is equal to 
tliat of at least two real horses, and thus we have 
an equivalent for forty-eight million horses working 
at the transport of men and their goods. In fixed 
machinery, France possesses three million horse 
power, and Belgium half a million. Reckoning 
this unit of horse power as equal to the power of 
twenty-one men, we find that to each French and 



Production and Productive Labour. 91 

Belgian family there are five iron slaves, always 
ready, never tired, and amply nourislied by a small 
supply of coal. 

In ancient times, slaves, as we may read in the 
Odyssey, used to crush corn by hand in stone 
mortars. Later on, like Plautus, they were set to 
turn a mill. Towards the end of the Roman 
Republic there was introduced from Asia the 
water-mill. Antiparos, a Greek poet, celebrates 
as follows this labour of nature in the service of 
man, the marvel from which has issued every 
improvement in production. " Slaves who turn 
the mill, spare your toil and sleep in peace. It 
is to no purpose that the cock's shrill tones herald 
the dawn; take ye your sleep. By command of 
Ceres, the task of the young maidens is performed 
by Naiads, and these are now bounding in all their 
agile brilliancy upon the turning wheel. Let us 
live the happy life of our fathers, and enjoy at 
our ease the bounty which the goddess showers 
upon us." Machinery thus creates either leisure, 
or, if the will exists to employ this leisure in further 
production, additional wealth. 

(ii.) Thanks to these mighty forces, men now 
execute enormous works which are the wonders 
of our time — the tunnels of Mont Cenis and the 
Saint Gothard, and those that are in progress under 
the Simplon and the Pyrenees; canals across the 
isthmuses of Suez and Panama which change the 
constitution of continents and the highways of 



92 Elements of Political Economy. 

commerce ; the draining of the lake of Harlem, 
workinsf of mines at three and four thousand feet 
below sea level, a telegraph that encircles the entire 
globe with a network of wire along which human 
thoughts circulate with the swiftness of lightning. 

(iii.) Machinery releases man from mechanical 
labour. With the foresight usual to genius, Aristotle 
wrote, " If a tool could anticipate and execute the 
workman's orders, if the shuttle could transverse the 
woof of its own accord, art would have no more need 
of labourers, or masters of slaves." 

(iv.) Machinery multiplies, sometimes enormously, 
the amount of produce which a given number of 
workmen can turn out. In cotton-spinning a single 
workman in charge of five hundred spindles does the 
work of a thousand spinners by hand. In the same 
way, a knitting machine in a given time makes six 
thousand times as many stitches as a good work- 
woman. 

(v.) The rapidity with which work is done spares 
manual labour, and, as a result, cheapens the price 
of all machine-made articles. Lucifer matches can 
thus be sold at a penny the box of over a hundred, 
and a number of the Neiv York Herald, containing 
as much matter as two volumes of 500 pages, 8vo, 
for five cents, or about twopence-halfpenny. 

(vi.) Machinery does its work with perfect regularity 
and mathematical precision, witness its division of a 
metre into thousandth parts. 

(vii.) Machinery makes the best use of raw 



Production and Productive Labour. 93 

materials ; thus a steam saw can cut up the thinnest 
planks. 

(viii.) Machinery brings within a workman's means 
a whole host of useful and agreeable articles, once 
the exclusive property of the rich ; for instance, 
printed cottons, which are no longer luxuries. 

(ix.) The tendency of machinery is thus to promote 
equality among men, and it is consequently the 
cause and the ally of all democratic progress. 
Books and travelling are nowadays accessible 
to all. 

Certain kinds of machinery are open to the 
reproach of sometimes imposing on workmen labours 
which exhaust and emaciate them, or give rise to 
special diseases. On the other hand, however, the 
old low, ill- ventilated rooms are now replaced by large 
workshops, in which the rules of hygiene are usually 
observed. It is the duty of employers, and failing 
these, of the state, to obviate the evils which may 
sometimes accompany the use of machinery. The 
science which invents the machines, provides the 
means for their safe employment. 

§ 4. Does Machinery diminish the Employment 
and Wages of Workmen ? 

This is the present state of affairs in Europe. The 
country in which industry employs most machines 
is England, and England is also the country in 
which industry employs most workmen. The country 
in which industry employs fewest machines is 



94 Elements of Political Economy. 

Russia, and Russia is also the country in which 
industry employs fewest workmen. Thus, far from 
diminishing employment, machinery actually increases 
the number of workmen. The explanation of this 
may bs stated as follows. 

A great proprietor maintains on his estate a 
hundred workmen who labour for him. He invents 
sundry machines, which enable him to save one-half 
of the manual labour, so that for the future fifty men 
are sufficient to do all his work. Will he then leave 
the other fifty, whose labour is no longer necessary, 
unemployed, and cast into the sea, as useless, the food 
with which they were nourished ? Certainly not. 
He will continue to support them, and will employ 
them to do him fresh services. The same number 
of workmen will be employed, but more commodities 
v/ill be produced, and more wants satisfied. 

Take another case : the proprietor may content 
himself with the old amount of produce, and reduce 
by a half the number of hours he requires his hundred 
retainers to work. If he does this, the machines will 
have created additional leisure, instead of additional 
products. If all his rational wants were already 
satisfied, the second course will be the wiser ; if this 
was not so, it is the first that will prevail. A country, 
viewed as one great consumer, is in exactly the 
position of this proprietor. 

What happens is really this. Machinery shortens 
labour, and saves hand-work. The economy of hand- 
work lowers the prices of all fabrics, and with the 



Production and Productive Labour, 95 

fall in price of these articles, the consumers have 
money available, with which they purchase other 
commodities. Workmen, whom the new machinery 
has temporarily thrown out of employment, are again 
taken on to make the articles which are the objects 
of the new demand. Since the employment of work- 
men remains the same, while the means of subsist- 
ence does not diminish, there will be no reduction of 
wages. On the contrary, the working classes will be 
benefited, since with the same wages they will be 
able to purchase a greater amount of the com- 
modities whose prices have been lowered by the 
use of machinery. 

§ 5. How Machinery may compel Workmen to 
change their Occupation. 

If consumers employ the money which machinery 
enables them to save, in purchasing a greater amount 
of the goods thus cheapened, all the workmen may 
continue to work at this industry, employed in 
producing greater quantities to meet the increased 
demand. In this case the only difference will be 
that wants will be more largely satisfied. 

If, however, the consumers prefer to purchase new 
products, workmen will be obliged to take to new 
industries. Often they will only be able to do this 
slowly and with difficulty ; sometimes they will be 
unable, to do it at all, will suffer, perhaps even 
succumb. They will have to endure a crisis. This 
crisis will be of greater severity, if the new industry 



96 Elemnets of Political Economy. 

is situated in another province, and worse still if it 
is transferred to another country. As soon, however, 
as it is passed, the same number of workmen will be 
employed, only there will have been a displacement 
which will leave more workmen in one place and 
fewer in another. A crisis of this sort was suffered 
in Flanders, when spinning machines broke the 
spindle in the hands of the country spinning women, 
and summoned a new class of workwomen to the 
factories at Ghent. 

In these instances, happily of rare occurrence, it is 
the duty of employers of labour and of public bodies 
to come to the aid of the dispossessed workmen by 
instructing them, by facilitating their migration, and 
even by giving them actual help, as was done in 
Flanders in 1847. The new machinery benefits 
society at large, it is, therefore, intolerable that the 
workman, who is not responsible for the modifications 
introduced into industry, should be made their 
victim. Since he is deprived of his livelihood in 
the interests of the public good, he has a right, 
should he need it, to an indemnity, and the machinery 
which has increased production, affords the means 
of paying it. 

§ 6. How Machinery increases the Employment 
of Workmen. 

Thanks to machinery, the earth produces more 
new sources of wealth are being discovered, and 
works are multiplying on every side. In this way 



Production and Productive Labour. 97 

more workmen are employed, and at the same time 
there are more commodities to satisfy their hunger, 
their need of clothing, and their other wants. The 
number is incalculable of the workmen employed 
in industries which machinery has created, such as 
railroads, post offices, telegraphs, steamships, mines, 
great manufactories, and the construction of machines 
themselves. Printing employs twenty times more 
workmen than there were ever copyists transcribing 
manuscripts. Transport, again, demands the services 
of a hundred times the number of people it used to 
employ when people and produce grew up side by 
side. 

J. S. Mill has remarked with profound sadness, 
that it is doubtful if hitherto all the machines that 
have been invented have decreased the sum of human 
labour by a single hour. Far from the hours of 
labour being decreased, far more men work at present 
and work for a longer time. Formerly the night 
brought sleep to all, and the Sabbath, rest. Now 
numbers are kept at work all night, on railroads, on 
ships, in the depths of coal mines, in blast furnaces, 
in sugar refineries, at offices, and even in the laboratory 
or library of the student, everywhere in fact where 
industrial process may not be interrupted, and the 
activity of modern life forbids delay. Man is harassed 
and consumed by these indefatigable iron slaves 
which he commands, but which he has also to serve, 
and whose activity "doth make the night joint- 
labourer to the day." 



98 Elements of Political Economy. 

The immediate remedy for this excess of toil is 
to preserve with all possible scrupulousness, at least 
one day out of the seven to be spent in complete 
rest by those who are incessantly occupied with 
daily toil. Hereafter, when all rational wants arc 
satisfied, machines will be required to cease the 
incessant increase of productions, and create more 
leisure for that true life, which, as the Greeks so well 
understood, is the life of the soul. 



CHAPTEK VI. 

THE ESTABLISHMENT OF AN EQUILIBRIUM BETWEEN 
PKODUCTfON AND CONSUMPTION. 

When so many and such powerful machines are 
seen at work on every side, the question arises as to 
how this enormous and ever-increasing quantity of 
products will find purchasers and consumers. Will 
not the lack of an outlet some day produce a 
glut ? 

Economists reply that a general glut is impossible, 
since it is a fundamental principle that "products 
exchange for products," and thus if everybody who 
may wish to exchange offers twice as much as 
heretofore, the exchange will be effected exactly the 
same, the equation will be maintained, and the sole 
difference will be that every one will give and receive 



Froduction and Productive Lahour. 99 

twice as much. A partial glut, however, is perfectly 
possible, if some one industry greatly increases its 
production while its customers have neither the wish 
nor the means to buy the surplus thus created. In 
the first of the cases they contemplate, economists 
have made an unfair use of mathematical formulas. 
Even if we suppose a general and identical increase 
of production a glut might arise, since the consump- 
tion of the various commodities could not possibly 
increase at a uniform rate. If twice*the number of 
hats were made it is very unlikely that they would 
all be sold. 

The true answer to our problem is that when there 
is a lack of equilibrium between production and 
consumption certain influences come into play which 
tend to restore this in the following way. 

First Case. — Too few shoes are made. Those 
desirous of them will bid against each other for 
their possession. The price will rise, and shoemakers, 
gaining a greater profit, will make a greater number 
of shoes till the equilibrium is established. 

Second Case. — Too many shoes are made. To sell the 
surplus shoemakers will lower their prices. This will 
have two results : first, the fall of prices will increase 
the number of consumers ; secondly, shoemakers, 
finding themselves at a loss, will make fewer shoes, 
until the equilibrium is here again established. 

In this Avay, by the fluctuation between the rise 
and fall of prices a certain equilibrium, though 
always an unstable one, tends to be established 

H 2 



100 Elements of Political Economy. 

about the point at whicli production satisfies 
consumption. 



CHAPTER YII. 

CLASSIFICATION OF USEFUL OCCUPATIONS. 

The time-honoured classification of the different 
branches of production, and the one usually illustrated 
in sculpture and painting on public monuments, is 
that which distinguishes them into agriculture, 
manufacture, and commerce. 

In international exhibitions the order followed is 
often that of the completion of the products and 
according to the wants whicli these supply. Raw 
materials and articles of food, building, furniture, 
clothing, artistic manufactures, and the fine arts. 

The following is an expansion of a classification 
based on the actual nature of the labour, proposed 
by M. Dunoyer. This distinguishes — 

I. Labours which have to do with men, and consist 
in the rendering of services. 

II. Labours which have to do with things, and 
produce material commodities. 

These may be subdivided into — 

(i.) Extractive industries, which demand from 
nature useful substances without either modifying 
these or preserving the sources from which they are 
obtained. Such are the gathering of wild fruits, 



Production and Productive Labour. 101 

fishing, hunting, and the working of virgin forests, 
mines and quarries. 

(ii.) Agriculture, which also extracts commodities 
from the soil, but preserves in good condition the 
sources of their production ; and above all sets in 
motion the organic force called life, which multiplies 
both vegetation and animals. 

(iii.) Manufactures, which receive the materials 
obtained by the two preceding kinds of labour, and 
by the help of physical and chemical forces so 
fashion them that the made-up articles are able to 
satisfy the different human wants. Thus out of wool 
is made cloth, and out of flax, linen. 

(iv.) Commerce, which summons goods to where 
they are wanted, and preserves, unites, and divides 
them to suit the convenience of consumers. 

(v.) Trans'pori, which conveys men and articles to 
the places where they are of the greatest use. 



CHAPTER YIII. 

OCCUPATIONS WHICH HAVE TO DO WITH MEN. 

It has been maintained that such occupations as 
those of the physician or the magistrate, although 
useful and even necessary, are not productive, since 
they do not produce any of those material objects 
with which political economy is alone concerned. A 



102 Elements of Political Economy. 

more careful analysis would have made it plain that 
any useful labour is necessarily productive, since in 
this case the two adjectives have nearly the same 
meaning. Those who render services to their fellows 
by procuring them greater security, health, or instruc- 
tion, ought to be regarded as the partners of the 
labourers who work upon material objects. In the 
social workshop they are indirect producers, and we 
have here an application of the division of labour. 

If a farmer could not rely on the services of the 
policeman, the magistrate and the schoolmaster, he 
would have to spend his time in teaching his 
children, guarding his stacks, and judging crimes 
and suits. Thanks to the help of the members of 
special professions he is able to devote all his time to 
his farm. In this way more products are obtained, 
and every article is better made. 

Once more, the labours which aim at giving 
society security, justice, health, and instruction are 
by far the most productive of any, since without 
these the work of production languishes or dies 
outright. Capital is secreted or never amassed, 
manufacture dares not spread its wings, credit hardly 
exists, commerce is timid, or a nonentity. Of all 
this the East furnishes an example. 



Production and Productive Labour. 103 



CHAPTER IX. 

OCCUPATIONS CONCERNED WITH THINGS. 

§ I. Extractive Industries. 

In prehistoric times, as among the population"' 
which still remain in savagery, the gathering wild 
fruits, fishing, and the chase supply man with all he 
consumes, the food he eats, and the skins with which 
he is clothed. In the Europe of to-day gathering 
wild fruits is little more than a memorial of the 
golden age, and hunting a pleasure which costs more 
than it returns. Only fishing has preserved any 
importance. This still everywhere furnishes a notable 
amount of a light and nutritious food. In Norway 
it is estimated to produce as much as agriculture. 
Moreover, it has played a great part in history by 
furnishing ships of war with their best sailors, a 
service which in some countries has rendered it the 
object of sometimes undue encouragement. The 
process of barrelling herrings, invented by Willem 
Benkels, of Biervliet, created the large fisheries of 
Holland, and these were the training school of those 
'' sea-beggars " who beat the Spaniards, and of the 
fearless sailors who carried the flag of the Nether- 
lands on every sea. 

The working of mines in our own days has made 
an immense stride. Besides the precious metals the 



104 Elements of Political Economy. 

ancients extracted from the soil copper, tin, and iron, 
but all in small quantities. To-day the mining 
industry is the basis of every other, since it supplies 
the coal which has been well called " the bread of 
industries." 

Iron, again, is of such importance that it is said 
that the material prosjoerity of a country may be 
measured by the amount of this metal which it 
consumes. The statistics of a single one of its 
branches will suffice to give an idea of the present 
importance of the mining industry. In 1880 there 
were produced three hundred and forty-three million 
tons of coal, the value of which, at the very low price 
of eight shillings a ton, would be 137,200,000/. 

All the extractive industries have the unfortunate 
characteristic of exhausting the sources of their 
production, which they are powerless either to create 
or in any sensible degree reconstitute. Pisciculture 
may transform fishing into an " agriculture of the 
rivers and sea," and on this account deserves the 
utmost consideration, both of the State and of 
individuals. 

But what are men to do when they once have 
burnt the layers of combustible matter which repre- 
sent the accumulated forests of the geological eras 
and the warmth of the sun stored in the secondary 
strata ? It is calculated that in Europe there is 
coal enough to last for three or four centuries, but 
scarcity will make itself felt long before the complete 
exhaustion of the supply. Already in many countries 



Production and Productive Lahour. 105 

iron, lead, zinc, and copper are becoming rare. Every 
store that cannot be renewed must end by being 
exhausted. 

To whom, in the interests of production, should 
mines belong ? In England they are the property 
of the owners of the surface. In France and 
Belgium by the law of 1810 they are assigned to 
the State, which concedes the right of working them 
to individuals, reserving to itself a rent and general 
supervision. The French system appears the better 
of the two, since it avoids subdivision, and allows of 
concessions being granted such extension as may 
be most adapted to a wdse system of working. 

§ 2. Agriculture. 

The ancients held, and rightly, that no other 
labour is at once as good for mind and body, and so 
worthy of a free man as agriculture. In the fine 
words of Cicero : " Omnium rerum ex quibus aliquid 
acquirihtr, nihil est agricultura melius: nihil uberius, 
nihil dulcius, nihil homine lihero dignius (De Officiis,\. 
42). Elsewhere he again remarks that the pleasures 
of those who till the soil are almost as elevated as 
those of the philosophic life. Voluptates agricolarum 
mihi ad sapientis vitam proxime videntur accedere. 
Cato the Elder pronounces this fine eulogy on 
agriculture : Pius qucestus, stdbilissimus, minimeque 
invidiosus. Minimeque male cogitantes sunt qui in eo 
studio occupati sunt {Cato Major, 15, § 51). "Holy 
calling, most steadfast and most free from envy : they 



106 Elements of Political Economy. 

who engage in this pursuit have their thoughts least 
set on evil." Xenophon in the Country Economy of 
Ischomachos paints the life of a Greek farmer in all 
its happiness and social usefulness. Horace is never 
tired of vaunting the felicity of the country life : 
Beatus ilh qui . . . paterna rura bobus exercet suis, 
solutus omni foenore (Epode ii). The type of those 
brave peasants who used the same hand to guide the 
plough and wield the spear, like Cincinnatus, was 
always admired by the Komans, especially in the 
days of the decline. 

At the present time attention and encouragement 
are exclusively given to the manufacturing industries. 
This is a mistake. If it be more important to make 
men healthy and happy, than to incessantly increase 
production, it is agriculture that deserves every 
advantage. Sully's saying will always be right : 
" Tillage and pasturage are the two breasts of the 
State." 

Quesnay and his disciples, who, from their desire 
to regulate societies by the order of nature, were 
called pliysiocrates, maintained that the labour of the 
farmer is the only one which leaves a surplus on 
which the other professions can live. On the other 
hand, Destutt de Tracy asserts that a farm is only a 
factory like any other. 

As to the essence of the matter in dispute, the 
physiocrates were in the right. Undoubtedly, despite 
their arguments, the other industries are productive, 
since they increase the utility of things by rendering 



Production and Productive Labour. 107 

them fit for our use ; but the farmer sets at work 
not only physical and chemical but also vital forces, 
and thus multiplies commodities. He sows one 
grain of corn and reaps twenty ; this year he has a 
couple of sheep, in a few years he will have a flock. 
Agriculture is the first of industries, because it is 
the foundation of all the others. These can only 
increase the number of persons they employ, if the 
farms supply them with more food. 

Real civilisation dates from the day when man 
first intrusted a grain of corn to the soil ; from that 
day forward it has been his interest to live at peace 
with his fellows. So long as he was supported 'by 
the chase or even by cattle-farming, disputes might 
arise as to the run of the game or the pastures of 
the flocks. It was at this time that Hobbe's atrocious 
phrase, Homo homini hqms, man a wolf to his fellow, 
was really true. As soon as he drew his subsistence 
from the soil, a subsistence extracted by the sweat of 
his brow, man was forced to desire that justice should 
take the place of violence, in order that he might 
gather in security the fruits of his toil. 

§ 3. The Progress of Agriculture. 

The domestication of animals preceded agriculture, 
and was a great step in the progress of primitive 
man, whose meal no longer depended on a chance 
javelin shot, but was always ready at hand. The 
pastoral system has lasted unaltered in certain 
countries adapted to it, such as Arabia and Tartary. 



108 Elements of Political Economy. 

It is still the most advantageous in countries where 
at the outset population is scarce and pasture lands 
extensive, as in Australia, Natal, and the pampas of 
La Plata. 

Agricultural progress has consisted in obtaining 
from the same space a larger amount of produce by 
the employment of better processes and larger 
capital. From being extensive cultivation has 
become intensive. This truth has been well ex- 
pressed by Palladius, a Latin agriculturist of the 
fourth century, who summed up the works of his 
three illustrious predecessors, Cato, Varro, and 
Columella. Plis words are : Fecundior est culta exi- 
guitas quam magnitudo neglecta. " A little field well 
tilled is more productive than a large one neglected," 

At the outset cultivation was intermittent and at 
times even nomadic. The surface soil was burnt 
and a crop obtained from the ashes ; eighteen or 
twenty years had then to elapse for spontaneous 
vegetation to restore to the soil its elements of 
fertility. 

At a later date, by the side of the large tracts 
reserved as pastures, the arable land lies fallow every 
other year in biennial rotation, or one year in three 
in triennial. Still later, the earth is given no rest at 
all, but by alternating cereals with fodder and roots 
is made to yield a harvest every year. Finally, by 
continually increasing the amount of manure, by the 
system of " stolen crops," two harvests may be 
obtained in a single year. Thus, the fundamental 



Production and Productive Labour. 109 

principle of agriculture is to restore to the soil as 
much as is taken from it, and even to add fresh 
fertilizing matter such as lime, chalk, Peruvian 
guano, phosphates, ditch mud, and the sewage of 
towns. Thievish cultivation, RaitbcuUur, as the great 
chemist Liebig well called it, sterilises the most 
productive regions, such as those of Sicily and 
Algeria, once the granaries of ancient Kome. 

The forms of property have passed through a 
similar development to those of cultivation. Origi- 
nally collective and communal, it came, later on, to 
belong to the family and finally to the individual. 

In Belgium the different agricultural regions still 
present a picture of the successive stages of agri- 
cultural progress, and the most primitive methods of 
cultivation are to be found in the districts geologically 
the most ancient and the most elevated. On the 
plateau of the Ardennes, the first schists which 
emerged from the primitive ocean, the collective 
lands of the commune are prepared by fire, every 
fifteen or twenty years to give a crop of rye. The soil 
of Condroz, built upon limestone or on schists more 
recent than those of the Ardennes, is cultivated by a 
triennial rotation. The biennial system is dominant on 
the clay of the herbage ; finally, on the modern and 
well cultivated sands of FJanders prevails the inten- 
sive system of high farming and double crops. Thus 
in ascending, stage by stage, from the cea board to 
Luxembourg the traveller ascends at once the scale 
of altitudes, epochs of agriculture, and geological eras. 



110 Elements of Political Economy. 



§ 4. Large and Small Farming. 

It is often discussed whether preference should be 
given to large or small farming. Large farming may 
be taken as cultivating an extent of more than a 
hundred acres, small farming as working less than 
twenty-five. 

If it is above all things advantageous to a country 
to be inhabited by a vigorous race of proud and inde- 
pendent peasant proprietors, like that of Rome in the 
early days of the republic, or those of Switzerland, 
France, and Norway in our own times, small farming, 
united with peasant proprietorship, is far superior to 
large. It may be added that, except in England, 
small farming everywhere yields a larger gross, and 
even a larger net product. To be convinced of this 
it is only necessary to compare districts respectively 
of large and small farming in the different countries 
of Europe ; in Italy, the small poderi of Tuscany 
with the latifundia of the Roman States and Sicily ; 
in Spain, the bare plains of Castillo with the neigh- 
bourhood of Barcelona or Valentia ; in Portugal, the 
desert wastes of Alementego with the smiling afora- 
incntos of the northern provinces; in France, the 
aepartments of the centre with those of the north ; 
in Prussia, the provinces of the East with those 
of the Rhine ; and in Belgium, Flanders with 
Condroz. 

In England large farming and large properties 
have killed this class of free and brave peasant pro- 



Production and Productive Labour. Ill 

prietors, the yeomen who won the battles of Poitiers, 
Crecy, and Agincourt. The following table shows 
how small is the rural population in England : — 



DIVISION OF THE POPULATION AMONG THE 
DIFFERENT OCCUPATIONS. 



England . . . 


Agriculture. 
. . 26 . 


Manufactures. 
. 43 . . 
• 26 . . 
. . 30 . . 
. 21 . . 
. 30 . . 


Commerce. 
. 15 


France . . . . 


. . 53 . 


. 11 


Prussia . . . . 
United States . 
Belgium . . . 


. . 54 . 
. . 48 . 
. . 31 . 


6 
9 

. 7 



Never to be forgotten is Pliny's cry of grief which 
echoes like a warning voice through economic his- 
tory : Latifundia perdidere Italiam et provincias. 
" Overgrown estates ruined Italy and the provinces." 
Large properties everywhere produce excessive in- 
equality, depopulation, class divisions, and decay. 
Countries inhabited by peasant jDroprietors have 
withstood all these crises. The farmer who is his 
own landlord, who sees on his field the fruits of his 
toil, who pays neither rent nor wages, can brave 
without fear both foreign competition and the 
variations of prices. 



§ 5. Manufacturing Industries. 

The manufacturing industries receive from the 
extractive and agricultural their raw materials and 
give them the final form demanded by consumption 
In primitive times the labour of the manufacturer 



112 Elements of Political Economy. 

was closely connected with that of the husbandman. 

In the home of the Greek or Roman, who lived by 

the produce of their fields, the women spun the 

flax and made the clothes. The same organisation 

of labour is found on the estates of Charlemagne 

and at the present day there are examples of it in 

India, in Kussia, and amongst the Slavs ot the 

Danube. 

Whenever the ease of communication makes it 

possible, the division of labour calls into being the 

workmen with a special craft. Industry can then 

make a great advance, as has been seen in antiquity 

in Phoenicia and Egypt, and in the middle ages in 

the Italian republics, and the Flemish communes. 

It continues, however, to preserve its domestic 

character, and still remains manufacture on a small 

scale. 

Manufacture on a large scale comes into being 

with mechanical motive powers. The contrast be- 
tween these two forms of production is very striking. 
Even when the weavers of Bruges or Florence were 
sending their clothes to all the markets of Europe, 
the work was carried on by the domestic hearth, as 
one sees in the illustrations of manuscripts. The 
children cleaned the wool, the Avife spun it, and the 
husband, helped by some journeymen, worked at the 
loom. The capital employed is small; the circle 
of workpeople limited. Equality prevails between 
the master-workman and the hands he employs ; 
they have the same labours, the same kind of life 



Prodtiction and Productive Labour. 113 

and tlie same mental culture. The market for which 
they work is known and assured. 

Nowadays a large capital unites in a large work- 
shop, around the engine which supplies the power, 
a perfect crowd of workmen, separated from their 
hearths, and working for a market which sometimes 
expands and sometimes contracts or closes. The 
head of this army of industry is wealthy or largely 
paid, for his position demands varied and unusual 
aptitudes, the power of governing, technical know- 
ledge, an acquaintance with the markets, the spirit 
of order in administration, and, above all, good sense 
in business matters. Ways of life and mental culti- 
vation have thus opened a great gulf between the 
employers who furnish the capital and the labourers 
who lend their strength. Hence results what is 
called "the conflict of labour and capital," and 
all the novel phenomena of the existing economic" 
order. 

Even in the manufacturing countries of the West, 
industries on a small scale employ more workmen 
than those on a large. For instance, in France, at 
the census of 1872, there were reckoned to be 
950,000 men employed in the first as against 909,000 
in the second. It is plain, however, that manufacture 
on a large scale is every^diere gaining ground. It is 
even invading what might have seemed the special 
field of bespoken labour, the making of clothes and 
shoes. This is explained by the advantages it 
possesses, which are as follows : 

I 



114 Blements of Political Economy. 

(1) Application on a large scale of the principle 
of the division of labour. Over each duty is set a 
man specially suited for it ; thus, on a great railroad 
there will be "specialties" for the maintenance of 
the line, for the rolling-stock, for the traction, for 
the combustibles, for the tariffs, for the commercial 
details, and for litig^ation. 

(2) Relative diminution of the general expenses. 
Among the expenses of production there are some 
which arise from the very nature of the enterprise, 
and, like patent fees, scarcely vary ; others, again, 
vary in proportion to the activity of production, like 
the fuel in a steam engine. The first expenses are 
called "general, or fixed," the second "variable, or 
proportional." From this very definition it follows 
that the first expenses must become relatively smaller 
with every increase in the total produced by the 
enterprise. 

(3) Less capital is required to create the same 
produce. A furnace casting ten thousand tons of 
iron a year will cost less than two furnaces each 
casting five thousand. 

(4) Employment of machines of exceptional power, 
sometimes carrying with them a monopoly, like the 
famous Krupp hammer, which cost 200,000Z. 

(5) Purchase of raw material on a large scale and 
consequently at cheaper prices, and a greater profit 
made on waste. 

(6) Greater means for finding markets, agencies, 
foreign travellers, world-wide reputation, &c. 



Production and Productive Labour. 115 

(7) Coalitions effecting economies, as does an 
amalgamation of the systems of different railways. 

(8) The expenses of the original model reduced 
with every increase of production ; for example, 
where 50,000 copies of a paper are printed the 
cost per copy of setting up the type becomes 
insignificant. 

The inconveniences of industry on a large scale 
are as follows : — 

(1) It removes the workman from his family 
life. This evil is aggravated when wives also are 
employed. 

(2) It diminishes the power of personal interest 
and the efficaciousness of what is called " the master's 
eye." 

(3) By working for an unknown and very variable 
market it is exposed to frequent crises. 

(4) It crowds workmen together in certain locali- 
ties which are thus made unhealthy. This last 
defect, however, can be obviated by building work- 
men's houses. 

§ 6. Necessary Conditions of Industries on a 
large Scale. 

Industry on a large scale can only be developed 
when certain conditions occur tog^ether. 

(1) Cheap means of transport — the sea, canals, or 
railroads — to bring vast amounts of raw materials 
and carry away vast amounts of fabrics, 

(2) A good political, civil, and judicial organisation, 

T 2 



116 Elements of Political Economy. 

assuring the security necessary to the employment of 
large capitals. 

(3) A capable staff, especially for the management, 
as the success of an enterprise mainly depends on 
the skill of its directors. 

It is often strangers who introduce a new industry 
into a country ; thus the first railroads were almost 
everywhere constructed by Englishmen. These 
foreigners should not be regarded with jealousy ; 
they come to open up fresh sources of wealth. The 
first care, however, of a government should be to 
create institutions that will serve as training schools 
for good industrial managers. 

§ 7. Industries of Transport. 

Industries of transport contribute to the produc- 
tion of wealth by carrying articles to the places 
where they are most wanted and will be propor- 
tionately most useful. Transport is thus the ally 
and instrument of commerce. Sometimes it even 
creates the whole value of certain products which, 
useless in one place, so soon as they are conveyed 
elsewhere acquire great utility. Transport in this 
acts in the same way as the extractive industries 
which obtain minerals from the bosom of the earth 
in which they were lying useless. Again, by con- 
veying men and commodities transport disseminates 
the benefits of new discoveries, multiplies the rela- 
tions between nations, indistinguishably intertwines 
their interests, softens or destroys their antipathies, 



Production and Productive Labour. 117 

and finally makes their fraternity and co-operation 
something more than a word or a dream. It is thus 
a powerful agent of civilisation throughout the whole 
world. 

The progress made in the means of transport is 
truly astonishing. A horse can carry on his back and 
on a footpath 2 cwt. at most ; in a cart and on a 
macadamized road 2 tons ; on the rails of a tram\^y 
10 tons; on a canal or by sea 100 tons; lastly, by 
river, that walking road, as Pascal calls it, the bulk 
of the burden makes no difference, as is seen in the 
case of the huge timber rafts. 

The Romans were the first who knew how to con- 
struct the splendid roads, whose huge polygonal 
slabs resting on a foundation of mortar, may still be 
seen in the neighbourhood of Rome. These strategic 
roads, linking the most distant provinces with the 
centre of the Empire, served also the ends of com- 
merce, and caused Roman civilisation to penetrate 
everywhere. 

The advantages of improved channels of com- 
munication are numerous. 

(1) By diminishing the expenses of transport they 
enable goods to be sold to producers at higher profits, 
and at the same time allow of these buying more 
cheaply what they have to procure for their manu- 
factures. As a result there is an increase in the 
value of the sources of production, lands, forests, 
mines, and quarries, and an immense aggrandise- 
ment of the national wealth. 



118 Elements of Political Economy, 



(2) Merchandise is sent to market in greater 
quantities and, consequently, consumers obtain it at 
cheaper rates. 

(3) Rise of prices at the place of output ; fall of 
prices at the place of consumption ; tendency of 
prices towards uniformity. 

(4) Aggrandisement of the large towns, especially 
capitals. The attraction which these exercise on the 
seekers after employment, instruction, pleasure, 
seclusion or society, is no longer counterbalanced by 
the dearness of living. When, however, this aggran- 
disement of cities is favoured by an excess oi political 
and administrative centralization it becomes a great 
evil. 

§ 8. Should Roads be made, and Means of 
Transport provided from Public Funds ? 

Should the State, the county, the union, construct 
highways, ports, canals, and railroads ? If indi- 
viduals undertake these tasks, so much the better; 
if not, it lies with the public authorities to take 
action ; and for two reasons. In the first place, 
after public instruction there is no more powerful 
cause of progress than an improvement in the means 
of communication. In the second, since the nation 
profits by any increase in the revenue of taxes, or in 
the value of all the sources of production, it follows 
that the construction of railroads, &c., even though 
they yield no direct profit, is yet a most advan- 
tageous investment of the public funds. This can 



Production and Productive Lcdjour. 119 

be shown by keeping a strict account of debit and 
credit. To debit put down the cost of construction, 
to credit the increased value of lands, forests, mines, 
and quarries, the new industries which spring up, 
and the improvements in agriculture ; the credit side 
of the account will be by far the larger. 

The much discussed question as to whether the 
State ought also to take upon itself the working of 
railways is of the most complex character. Perhaps 
it should be answered by the economist in the 
affirmative, by the politician in the negative. Pos- 
sibly both parties might be satisfied if all the lines 
were concentrated in the hands of the State, which 
should then entrust their working to a company 
actinsf under Government control. 

§ g. Commerce. 

In the clear and simple manner taught him by 
Socrates, Xenophon explains the cause and the 
advantages of commerce. "No town," he says, 
" possesses at the same time both wood and flax, for 
wherever flax is plentiful the country is flat and 
without wood. One country has one commodity, 
another another. It follows that every state is 
obliged both to export and import. Commerce thus 
enriches the city by substituting useful commodities 
for articles which, by their excessive abundance, had 
lost all value." 

In the words of Montesquieu — " The natural effect 
of commerce is a tendency towards peace." How, 



120 Elements of Politieal Economy. 

indeed, is it possible to inflict harm upon an enemy 
without either ruinino^ a debtor or killins^ a cus- 
tomer? Commerce, again, applies between nation 
and nation the fertile principle of the division of 
labour. This is admirably expressed in a sentence 
of President Garfield — " Commerce makes all man- 
kind a family of brothers, in which the welfare of 
each member depends on that of the others. It thus 
creates that unity of our race which causes the 
resources of the whole world to be at the disposal of 
each individual." 

The maxim of commerce is to buy cheap and sell 
dear. Stimulated by self-interest, the merchant is 
ceaselessly summoning commodities from where they 
are over abundant and consequently cheap, to sell 
them where they are scarce and therefore dear; 
and in doing this he is serving the general 
interest. Ketail traders choose goods with discrimi- 
nation, buy them under the best conditions, class 
them in assortments, preserve and sell them in small 
quantities in such a way as to suit the resources and 
needs of the consumers. Were it possible to abolish 
these middlemen and bring customers face to face 
with producers, nothing could be better. Mean- 
while, however:, the middlemen render very real 
services 



Production and Productive Labour. 121 



CHAPTER X. 

COLONIES. 

In speaking of commerce, a few words must be said 
on the subject of colonies, since it is imagined now- 
adays, very wrongly, that a state must have colonies 
if it is to have a flourishing trade and large navy. 

The commercial city of Tyre and, later on, Carthage, 
established factories for trading purposes, and these 
developed into colonies and flourishing towns. The 
Greek cities founded colonies as outlets for the 
surplus population deprived by the slaves of the 
resource of manual labour. Despite the diminishing 
population of Italy, Rome founded colonies by estab- 
lishing veteran soldiers and the poorer burgesses on 
lands wrested from the conquered nations. The 
object was to " romanise " the provinces and con- 
solidate the imperial rule, and it was completely 
attained. In modern times the Spaniards and 
Portuguese founded colonies as a means of obtain- 
ing what was believed to be the most real kind of 
wealth, the precious metals. The Dutch and English 
afterwards followed their example in order to develop 
their trade and gain a monopoly of the sale of certain 
products much sought after in Europe. 

Little by little from out a mass of restrictive regu- 
lations was born the " colonial system." This system 



122 Elements of Political Economy. 

rested on two monopolies. The mother country 
reserved to itself the exclusive right of purchasing 
the products of the colonies and selling them in 
Europe. It thus reckoned, in the absence of all 
competition, to buy cheaply and sell dear. This was 
the first monopoly. Again, it reserved to itself the 
exclusive right of selling in the colonies its made up 
goods, once more reckoning, in the absence of com- 
petition, to obtain extremely high prices. This was 
the second monopoly. Both hopes were deceived, 
and the violation of freedom produced, as usual 
nothing but bitter fruits. On the one side, the 
colonies, crushed beneath so many obstacles, con- 
tinued poor and purchased little ; on the other 
the inhabitants of the parent country paid high 
prices for the products of their colonies, which free 
trade would have brought to them at cheaper rates. 
Their slender profits were thus more than counter- 
balanced by the disguised tax they had imposed on 
themselves. To this must be added the cruel work- 
ing of the Indians, the slavery of the blacks, the 
frightful amount of blood and money which their 
enfranchisement has cost in the colonies of England, 
France, and recently of the United States, the 
destruction of the ancient civilisations of Mexico and 
Peru, the ruinous cost of maintaining armies and 
fleets, and, lastly, half a century of barbarous wars 
between European states rising out of colonial rela- 
tions. If all these be taken into consideration the 
total loss will far outweigh the total profit. 



Production and Productive Lcd)our. 123 

Undoubtedly the discovery of America and the 
trade with Asia have enlarged the dominion of the 
human race, and procured it the enjoyment of a large 
number of useful and agreeable products. But 
trade would have supplied the world with the same 
goods without making it pay so cruel a price. There 
is not a colony to-day which does not cost the inhabit- 
ants of the mother country more than it brings in. 

No more magnificent possession can be imagined 
than India. An immense empire, peopled by 
300,000,000 laborious and submissive inhabitants, 
and on the plains which descend in a gentle slope 
from the heights of the Himalayas to the sea, yield- 
ing every kind of product, because every kind of 
soil and climate is successively represented ; an 
empire, again, which is the theatre of one of the 
most ancient civilisations of the world ! Yet, if we 
look at its balance sheet, we find a permanent annual 
deficit, continual disquietudes, and, what is worse, 
smouldering jealousy or expensive wars with one 
or another of the European states ; lastly, the whole 
foreign policy dominated by a single interest. The 
English economists have adjusted the balance, and 
it does not incline in their favour. The younger 
sons of well-to-do families are employed by the 
Indian treasury, but, in reality, it is the English 
people that pays them. The imperial crown which 
the Queen has recently placed on her forehead, has 
cost, and will cost again, many a million of her 
subjects' money. 



124 Elements of Political Economy. 

For modern states the possession of colonies is an 
anachronism. That it is so may be easily proved 
against objectors as follows : — 

At the present day there are three kinds of 
colonies. The first, countries in which the emigrants 
from the parent state can live, work, and beget 
children, as Australia, Canada, and South Africa. 
The second are military and victualling stations, 
such as Gibraltar, Malta, Aden, Singapore, Hong- 
kong. The last are tropical regions, inhabited by 
races adapted to the climate, such as India and Java. 
Of these three kinds only the third need be con- 
sidered, because the first will soon emancipate them- 
selves like the New England, which has now 
developed into the United States ; the second are 
only powerful fortresses scattered over the surface 
of the oceans for the protection of trade. 

To govern colonies there is needed that spirit 
of continuity and authority which may be expected 
from an absolute power, but not from parliamentary 
ministers, who change at each election, and bring 
to the task of government views different if not 
opposed. A parliament elected to regulate the 
affairs of the mother country has neither inclination 
nor capacity to concern itself with those of the 
colonies. In England, when the Indian budget is 
discussed in Parliament, hardly fifty members stay 
in the House. Again, colonial affairs become com- 
plicated with those of the home country — themselves 
sufficiently intricate — and still further increase 



Production and Productive Labour. 125 

the difficulties and instability of parliamentary 
government. An example of this may be found 
in Holland. 

White men, who cannot work under a tropical 
sun, live of necessity from the tax exacted on the 
labour of the old inhabitants. This system was 
formerly considered a natural one; to-day it is 
attacked by those who defend the rights of humanity, 
and cannot last much longer. As soon as the 
equality of the different races is accepted as a dogma, 
equal rights are demanded for the aborigines ; but 
these rights cannot be granted while the aborigines 
are kept in a state of subjection. 

What an impulse would be given to education and 
every kind of civilisation if to their promotion were 
devoted the money devoured in maintaining the 
military and naval forces and in the frontier wars 
occasioned by colonies. 

The greatest evil of all is that the possession of 
colonies multiplies, between people and people, points 
of contact, and causes of dissension. To this the 
differences perpetually arising between England and 
the United States are a standing witness. 

In the present state of the world peace is such 
an inestimable blessing that all the colonies together 
both past and present, are not worth a single year 
of war. England, the greatest colonial power that 
has ever existed, understands this. She cedes the 
Ionian Islands to Greece, and sets an example of 
prudence which cannot be too much admired. She 



126 Elements of Politieal Economy. 

laments the acquisition of C3rprus; she counts the 
cost of her possession of India; she is paving the 
way for the complete emancipation of Australia, 
Canada, and South Africa. If a country has more 
money than it knows what to do with it should 
colonise its own waste lands : in France, Sologne ; in 
Italy, Calahria ; in Belgium, Campine. States 
which have no colonies may console themselves, and 
states which have colonies should prepare to lose 
them, for in this loss they will find a gain. 



CHAPTER XI. 

ASSOCIATIONS FOR THE COMBINATION OF CAPITAL. 

Industries on a large scale need a large capital. 
Who is to furnish it ? Formerly the employer con- 
tributed all the capital necessary, which was either 
wholly his own or borrowed on his credit. To-day 
this capital is usually formed by a combination of 
the capitals of a large number of persons. In this 
way the risk is shared in fractions. Each share- 
holder only ventures a small part of his property, and 
remembers the useful proverb : " All the eggs should 
not be carried in the same basket." The telegraph 
cable across the Atlantic was estimated to cost 
1,200,000/., and the experts asserted that the electric 



Production and ProdncHve Labour. 127 

spark could not traverse the ocean. Baron Roths- 
child himself would not have ventured the whole 
sum needed. But when the capital was divided, a 
share of the risk was no longer appalling; millions 
of persons subscribed for shares ; the electric cable 
was a success, and to-day links together all the 
continents across the seas. In this way a financial 
combination — the association of capitals — came to 
the assistance of science and enabled it to realise 
its wonders. Thanks to this principle of association, 
isthmuses are cut, mountains pierced, and every 
country in succession endowed with railroads, 
factories, banks, and all the enterprises which aim 
at turning the gifts of nature to advantage. 

Associations of capitals have taken certain definite 
forms : these are the commercial companies. Of these 
the laws of civilised countries recognise five distinct 
kinds : — 

(1) Companies Trading under a Common Name,. — 
These rest on no legal fiction. The shareholders 
have all a certain control over the management. 
They divide the profits in proportion to their con- 
tributions, but are indefinitely liable for all debts. 
This form of association is suitable only to enter- 
prises which present few risks. It was already 
known in Roman times ; thus Livy relates that the 
provisions for Scipio's army fighting against the 
Carthaginians in Spain were supplied by a com- 
pany. The jurist, Ulpian, again speaks of banking 
companies (societates argentarioe). 



128 Elements of Political Economy. 

(2) Companies with Mixed Liahility (socieUs en 
commandite). — In these some of the shareholders (les 
com,mandites) are active partners and have unlimited 
liability, others {les eommanditaires) are sleeping 
partners who supply capital, but only venture the 
amount of their shares so long as they refrain from 
any participation in the management. This kind 
of company, which is more frequent in France than 
in England, is very convenient for supplying a 
person of special aptitude — an inventor for instance 
— with the funds that are indispensable for profiting 
by his exceptional qualities or invention. It was 
first used in the middle ages in the Italian republics 
as a means of evading the canon law which forbade, 
under the name of usury, any fixed remuneration for 
a loan of money. The possessors of capital entrusted 
it to traders, and stipulated to receive a share of the 
profits in the place of a fixed rate of interest. 

(3) Joint Stock Companies. — In these no one, not 
even the manager or director, is responsible for more 
than the amount of his share, on condition that the 
laws are respected. This kind of company resembles 
a republic. All its authorities emanate from the 
body of shareholders. These nominate at a general 
meeting the chief of the executive, or manager, and 
the senate, or board of directors. 

^■^int stock companies first arose in the Low 
Countries in the seventeenth century, when they 
were formed for the purpose of organising those 
powerful associations which engaged in distant trade. 



Production and Productive Labour. 129 

(4.) Companies ivith limited liability resemble the 
preceding, with the exception that no previous 
authorisation is necessary for their constitution. It 
is sufficient to comply with the rules laid down by 
the law. 

The contributions of the members in these differ- 
ent forms of association can be, and usually are, 
represented by documents called bonds. 

(5.) Co-operative societies differ from others in the 
number of shareholders being variable, as also in the 
amount of their shares. They take as their aim the 
formino: associations of workmen and artisans. The 
subscription, which is usually very small, can be paid 
in instalments to suit the convenience of small savers. 
The combination of these petty savings, which in 
isolation would have been powerless, constitutes a 
capital sufficiently large to obtain credit or to form 
the funds of an industrial enterprise. 

The multiplication of joint stock companies is 
incredible. They are daily being started in every 
quarter and for every purpose. All new enterprises 
and most old ones are constituted in this form, and 
methods of possession have been really transformed.^ 
Of the causes of this astonishing success we have 
already indicated the first in the ease with which 
a great capital may be formed by the combination of 
small capitals and a division of risks. But, in the 
second place, joint stock companies obtain the most 
capable men to direct their affairs, and their 
managers, instead of being appointed by the chance 

K 



130 Elements of Political Economy. 

of birth, are chosen by election from among the 
most capable administrators. Again, these com- 
panies give to industrial property that democratic 
form which our era demands. The manufacturing 
industries, as they develop, take the form of immense 
enterprises, which oust the smaller workshops and 
artisans from the market. Of themselves they thus 
tend to constitute a kind of industrial feudalism. 
But joint stock companies, by dividing and partition- 
ing the proprietorship of large enterprises into a 
vast number of shares, each of a small amount^ 
enable even working men to participate in their 
success. Since property is the necessary comple- 
ment of freedom, the aim of civilisation should be 
to render the head of each household the proprietor 
of the instrument of his labour — the farmer of his 
field, the workman of his tool, or a share of the 
colossal machine into which the tool is often trans- 
formed. If a labourer purchase a share in the 
industrial company which employs him, the problem 
is at once solved ; the conflict between labour and 
capital comes to an end. 

By one of those frequent and natural harmonies 
between the changes introduced in the methods of 
production and the methods of possession, the joint 
stock company has become common at the moment 
of the development of industry on a large scale. 
It thus favours a subdivision of property increasingly 
democratic. 



BOOK III. 

DISTRIBUTION AND CIRCULATION, 

Part I.— DISTRIBUTION. 

CHAPTER I. 

DISTRIBUTION : RENT, WAGES, INTEREST. 

Three factors contribute to the production of 
commodities — nature, labour and capital. Each 
must have a share of the product as its reward, and 
this share, if it is to be just, must be proportionate 
to the several contributions. 

The share of the natural agents is Rent. The 
share of labour, Wages. The share of capital, 
Interest. 

The clerk receives a salary ; the lawyer and doctor, 
fees ; the manufacturer, profits : salary, fees, and 
profits are so many forms of wages for services 
rendered. 

K 2 



132 Elements of Political Economy. 

As soon as the contributors have been rewarded 
with their several shares, they are able to make 
exchanges, and exchanges constitute the circulation 
of wealth. Distribution, therefore, precedes cir- 
culation. 



CHAPTER 11. 

HOW DISTRIBUTION IS ACCOMPLISHED. 

In primitive societies such as existed before the 
rise of Rome, among the Italian tribes, and are still 
found in Norway and among the Slavs on the Danube, 
each father of a family cultivates his own patrimony, 
and produces all he consumes. Here there is no 
place for distribution ; labour, capital, and natural 
materials are all in the same hands. Remuneration 
is always fair. Each man gathers that which he 
sowed. Energy is rewarded, and indolence punished. 

When, however, the three factors are in the hands 
of different persons, and, in consequence of the 
division of labour, each depends on a process of 
exchange for obtaining what he consumes, distribution 
is no longer an easy matter, and no longer in such 
strict proportion to the several contributions. It is 
now brought about by the agency of an " employer," 
who pays each " factor of production " just as much 
as competition forces him to give, retaining the 
surplus as his own profit. 



Distribution and Circulation. 133 

Let us follow the fortunes of a loaf of bread. The 
farmer pays rent to his landlord, wages to his 
labourers, interest to the banker fiom whom he 
borrows ; the surplus left when all payments have 
been made is his profit. The corn arrives at the 
miller's. He, in his turn, makes a similar distribution 
to reward the labour used in grinding it. The baker, 
who turns the flour into bread, does the same. Last 
of all, the consumer who buys the loaf pays a price 
sufficient to replace the advances which farmer, 
miller, and baker have successively made by way 
of rewarding the three factors. 

Obviously, if the employer owns either the natural 
materials or the capital, he pays himself in the one 
case the rent, in the other the interest, or reckons it 
among his expenses. 



CHAPTER HI 

PRINCIPLES REGULATING DISTRIBUTION. 

Distribution is determined firstly by the civil 
institutions fixing the rights of individuals and the 
acquisition and inheritance of wealth ; secondly, and 
subordinately to these, by authority, by custom, or by 
free contract regulated by competition. 

The influence of the institutions of the state is 
plain. As in Egypt, the land, the great factories and, 



134 Elements of Political Economy. 

the railways may all belong to the sovereign. The 
soil of each parish may be owned in common by all 
the families of the village, as is the case in Great 
Russia. Again, as in France and Belgium, landed 
estates on the death of the proprietor may be equally 
divided among his children. In each of these cases, 
distribution will be very different from what it is in 
England, where landed property is held by a small 
number of rich proprietors, and descends, as a rule, to 
the eldest son. 

Subserviently to the influence of institutions, the 
share of one or another of the factors of production 
may be regulated by custom, as in the case of the 
fees of the lawyer or physician ; by authority, as in 
that of the salary of civil servants ; or by contract and 
competition, as with wages and rent. 

Formerly distribution was regulated, to a very 
considerable extent, by custom and authority. Thus 
in ancient Egjrpt and India, in the same way as in 
our own western countries during the middle ages, 
wages, payments in kind, and rentals were all fixed 
by use and tradition. The metayer system, which 
shares the produce equally between landlord and 
tenant, has not changed since the days of antiquity. 
On the other hand, in our own times, distribution 
is almost entirely governed by contract and 
competition. 



Distribution and Circulation. 135 



CHAPTER IV. 

EEWAED OF THE N'ATUKAL AGENTS. 

§ I. Rent. 

If I fish in a well-stocked lake, hunt in a forest 
where game abounds, or cultivate a fertile soil, I 
obtain enough to live on and something over. Nature 
lends me her aid ; and the greater her fertility, the 
greater will be the surplus which my labour, if well 
directed, will leave me over and above my necessary 
expenses. 

This surplus, due to the happy direction of my 
labour and the productiveness of the natural agents, 
is natural rent. Whether I am obliged to pay it to 
the proprietors of these agents depends not on nature, 
nor on my industry, but on social conditions. If the 
extent of fertile land is unlimited, as in new countries^ 
I shall pay nothing for the possession of a holding, as 
I can have one almost for the asking. In this case, 
then, I shall keep the natural rent, or surplus of 
produce over cost of production, for myself If, 
however, the natural agents are already appro]3riated, 
I shall have to give up all or part of this surplus to 
the landlord to gain the right to work his lands. The 
proportion I shall have to pay will depend on the 
competition among landless farmers, bidding against 



136 Elements of Political Economy. 

each other for the holdings from which to gain a 
livelihood. If these are few in number I shall have 
little to pay ; if, on the contrary, there are more 
would-be farmers than farms, I shall be reduced to 
surrender all the produce, save what is absolutely 
needful for my maintenance. 

Anything that produces useful commodities and is 
limited in quantity may yield a rent, just as well as 
arable land, a waterfall which turns a mill, a river 
or lake containing fish, a quarry or mine, building 
ground, or an exceptionally fine voice. The posses- 
sion of these things constitutes a monopoly, and their 
owners can therefore exact a rent from those who 
wish to enjoy them. 

Labour expended on good land is more productive 
than the same amount spent on bad. To obtain the 
right to cultivate good land it is, therefore, worth 
while to pay a sum equivalent to the advantage 
obtained by its greater fertility. The excess of the 
produce over the cost of production constitutes the 
natural rent. The portion of this excess which 
circumstances force the farmer to pay to the proprietor 
is the effective rent. 

it is often said that rent arises from the diff'erence 
of fertility in different soils. This difference, however, 
is the cause of the different rates of rent, not of rent 
itself As a matter of fact, if all lands were of the 
same quality they might all pay a rent, so long as 
they yielded a surplus, and so long as there were no 
waste lands to be appropriated. In Egypt the whole 



Distribution and Circulation. 137 

soil formed by the muddy deposit of the Nile is 
of an almost uniform quality, yet it all yields a very 
high rent. 

A good situation, such as one near a market, a 
river, a railroad or the sea, increases the utility of 
land, and has the same effect as fertility in giving 
rise to a rent. Land in the centre of a large town 
is often worth £100 the square yard, and is let 
at a proportionately high rate. 

Rent obeys the law which regulates value. It 
depends on utility and scarceness. The rent which 
a property yields increases in proportion firstly to 
the usefulness, and secondly to the rarity of its 
products. 

§ 2. Theory of Rent held by Ricardo and Mill. 

Ricardo, a disciple of Adam Smith, formulated a 
theory of rent which bears his name. According to 
this theory the most fertile lands are the first 
cultivated, and as long as any of these are available, 
rent has no existence. But, in time, population 
increases and the free lands are all occupied ; 
agricultural produce is in greater demand, and prices 
rise. This rise in prices makes it profitable to 
cultivate land of inferior quality. But in the land 
market, as in any other, articles of the same quality 
cannot sell for different prices, nor the same prices be 
obtained for articles of different quality. In this 
way the greater surplus which the better lands yield 
brings rent into existence. 



138 Elements of Political Economy. 

If population and prices continue to increase, 
recourse must be had to land of the third quality, and 
the rents of the other lands again rise. 

It follows that the rent of any given land is the 
difference which exists between the produce of this 
land and that of the worst in cultivation ; or, with 
greater exactness, where there is competition for the 
tenancy the rent is equal to the whole of the produce 
less the working expenses. It is the surplus, great 
or small, which labour yields when aided by the 
greater or less fertility of the natural agents. 

From what precedes we may draw two very im- 
portant conclusions. The first of these is that a 
rise in the price of agricultural produce is not, as is 
generally believed, the consequence of the rise of 
rents, but has this as its result. It is only when 
the farmer sells his corn and cattle dearer that he 
can pay a higher rental. Secondly, we may say 
that in all societies where wealth and population 
are developing, rents also tend to increase. In 
France and Belgium the average rent of land has 
almost doubled in the last fifty years. In England, 
also, the same tendency has shown itself, although 
during the last ten years it has been held in abeyance. 

A rise in prices favours the increase of rent in 
two ways ; firstly, the cultivator need sell less of 
his produce to cover his expenses ; secondly, each 
article of produce sells more dearly. The fall of 
prices naturally acts in the contrary way. 

Increase of rent is stopped, in the first place, by 



Distribution and Circulation. 139 

all agricultural improvements whose effect is to 
increase production, and, secondly, by the facilities 
for foreign importation. These two causes lead to 
the same result — a greater abundance of produce — 
and from this comes a fall of prices, and a con- 
sequent fall of rents.' At the same time it is quite 
possible that an increased quantity of produces, 
even when sold at a lower price, will yield an equal 
or greater total. In this case rents will not fall, 
and may even rise. 

Agricultural improvements, such as better ploughs 
and reaping machines, new highways, &c., which 
diminish the cost of production without increasing 
the total amount of products brought into the 
market, have a uniform tendency to raise rents. 
It is to this, together with the increase in the 
prices of meat and butter, that recently the rise of 
rent has generally been due. 

§ 3. Arguments of Economists who Deny the 
Existence of Rent. 

Certain economists, disciples of Bastiat and Carey, 
deny the existence of rent. The share of nature in 
production, says Bastiat, is always given gratuitously. 
If a rental is paid it is as a return for the labour 
and capital which have been sunk in the earth, 
and not for its natural fertility. Carey adds, 
contrary to the theory of Ricardo, it is the light 
land of the hills that are first cultivated, and only 
afterwards the more fertile districts of the valley. 



140 Elements of Political Economy. 

Bastiat's statement is opposed to facts. The lands 
which yield the highest rent in virtue of returning 
the largest amount of produce with the least ex- 
pense are often those in which the least human 
labour has been sunk. Such are the rich pasture- 
lands of Normandy, the soil of Egypt, and the " black 
lands" of Russia and Roumania. You have only 
to ask a farmer to be told that one field in a farm 
can often pay twice the rent of another. The 
Clos-Yougeot, the Chateau-Lafitte, the Johannisberg, 
yield a rent ten times as high as that of neighbour- 
ing vineyards which have required the same amount 
of labour. The European rivers in which salmon 
is caught pay a very considerable rent. There are 
many sources of utilities which bear a price which 
owe their value entirely to nature. 

The remark of Carey, on the other hand, has 
some foundation, but it does not weaken the 
principle of Ricardo's theory. Men have cultivated 
the most fertile or best situated lands first among 
those loithin their reach. For them other lands had 
no existence. When, later on, these other lands 
came into the market, they had the effect of an 
agricultural improvement. By yielding more abun- 
dant produce they momentarily arrested the rise 
of rents ; but where they were of exceptional fertility 
they must themselves have paid a heavy rent from 
the first. Soon, wealth and population continuing 
to increase, the rents of all the lands increase also. 
On this point Ricardo is in the right. 



Distribution and Circulation. 141 



CHAPTER V. 

WAGES. 

Wages are tlie reward of labour. 

Wages reckoned in money must not be confounded 
with wages calculated by the amount of commodities 
this money will procure. A workman can barely 
live in London on half-a-crown a day, because board 
and lodging are both very dear. In China or Japan 
with a third of this sum he need want for nothing, 
because everything is cheap. 

What is important to the labourer is the amount 
of commodities, such as bread, meat, and clothing, 
which his wage will allow him to consume. A 
decrease in the cost of production, causing a fall 
in the price of products, tends indirectly to increase 
wages. The labourer does not receive more money, 
but for the same money gets more commodities. 

§ I. Systems of Remuneration. 

Labourers are usually paid in money, but some- 
times in kind, as in countries where the farm hands 
are still boarded by their master. 

Labour may be paid according to time — by the 
day or hour ; or according to the work done — by 
the job or piece, as when painters are paid by the 
square yard, or masons by the cubic foot. Payment 



142 Elements of Political Economy. 

by the piece is preferable for many reasons. In 
the first place it is fairer ; every one is paid according 
to his skill and his industry. Again, it stimulates 
activity by bringing home the feeling of responsibility 
— the mainspring of the economic world. Thus the 
total production is increased, and the cost of super- 
vision abolished. If the workman is not tied down 
to a machine piecework enables him to choose his 
own hours, and to become, in a small way, a con- 
tractor himself, since all piecework is of the nature 
of a contract. On the other hand, it is of great 
advantage to the master, who has only to pay for 
what he actually receives. 

In spite of these advantages workmen dislike the 
introduction of piecework. In England they have 
often struck against it. In France, after the 
Revolution of 1848, they even demanded that it 
should be forbidden by law. They contend that 
the price of piecework is reckoned by what a " crack " 
workman can do, and that, consequently, an 
ordinary workman cannot earn a living. In reality 
work by the piece is, as a rule, better paid than 
work by the day, except when employers are com- 
pelled by competition either to reduce the rate or 
stop work altogether. It is to be wished that the 
system of piecework should prevail as widely as 
possible, inasmuch as by considerably increasing 
production it must indirectly promote the prosperity 
of the working classes. 

A still greater stimulus to work and to the 



Distribution and Circulation. 143 

improvement of the labourer's condition is afforded 
by adding to wages a certain share in the profits. It 
is now very usual to grant such a share to the 
manager and head- workmen in a commercial com- 
pany in order to interest them in its success, and 
thus increase their zeal. The best results would 
follow if this system could be extended to all the 
workmen. 

In France, Germany, Holland, and Switzerland, 
by a happy idea, some employers, instead of im- 
mediately handing over to their workmen this 
addition to their pay, save it so as to provide them 
with a fund for their old age. 

§ 2. The Iron Law. 

" In all kinds of work," says Turgot, " it must, and 
does, come to pass that a workman's wages are 
limited to what is needful for his subsistence." 
Later on Ricardo reproduced this idea, and believed 
that he had demonstrated its truth beyond con- 
tradiction. The wages of a workman, he says, 
naturally reduce themselves to what is indispensable 
if he is to live and support a family. He cannot 
be content with less, for excess of destitution 
diminishes the number of workmen, and the fewer 
the hands the higher the wages. Neither can he 
for any length of time obtain more; for easier 
circumstances increases the number of marriao^es 
and births, so that there are soon more hands in the 



144 Elements of Political Economy. 

market, and wages return to the necessary or natural 
minimum. 

Lassalle, a leader among the German socialists, 
appealing to Ricardo and the majority of economists, 
exclaims, " Here is the iron law, formulated by the 
masters of political economy, a law which condemns 
workmen to irremediable misery. A society which 
culminates in such an iniquity must be profoundly 
modified ! " 

Happily the observation of facts does not confirm 
the truth of Ricardo's supposed law. It has been 
abundantly proved that throughout Europe the 
condition of the working classes has considerably 
improved during the last century. Far from pro- 
ducing an excessive increase of population, easier 
circumstances tend to moderate it by the effect of 
prudence. Misery, on the other hand, has ever been 
prolific, as has been proved in Ireland, and a-s is 
indicated by the ill-omened word "proletariate," 
which means at once the miserable class, and the 
class that is overburdened with children. 

Labour, prosperity, and virtue, working together 
under the reign of justice, will effectually abolish the 
iron law. 

§ 3. Causes of Different Rates of Wages. 

Wages are very different in the various occupa- 
tions. A diamond-cutter in Amsterdam earns a 
pound a day ; an agricultural labourer in the same 
country little over a shilling. 



Distribution and Circulation. 145 

Many causes give rise to exceptional wages. 

(1) Bare Ability of Certain Kinds. — This con- 
stitutes a sort of monopoly. A great singer earns 
more than £5,000 a year, which is too much. Again, 
in a different rank, glass blowers who make the large 
panes of glass earn their ten shillings a day. 

(2) Locality. — Nominal wages are dearer in town 
because livino- is dearer. 

(3) The Average Length of the Working Season. — 
A workman who can only ply his trade during a 
part of the year must earn higher wages when he 
does work or he could not make both ends meet. 
Masons, in countries where the work is interrupted 
by frosts, are an example of this. 

(4) The Repugnant Element in Certain Occupa- 
tions. — No one would submit to this except for 
unusually high pay. The hangman is well paid, 
though he works but rarely. In many occupations, 
on the other hand, the certainty or agreeable 
character of the work compensate for the smallness 
of the remuneration. A junior clerk is contented 
with a slender salary because his future is assured. 
Governesses, if one may judge by advertisements, 
often ask only for " a comfortable home," and no 
salary. 

(5) The Length of the Apprenticeship. — This insures 
a high salary in certain occupations, for part of the 
salary goes towards repaying the expenses which 
have been incurred. 

The old economists thought that, taking these 

L 



146 Elements of Political Economy. 

differences into consideration, wages miglit be said 
to tend towards a uniform rate. Certainly, other 
things being equal, an exceptionally high salary must 
attract workers in such numbers as to cause a 
reduction ; whereas an exceptionally low salary will 
make the workmen seek trades where the pay 
is better. Nevertheless, as Mr. Cliffe Leslie has 
shown by numerous examples, wages in the same 
country and for the same trade will vary considerably 
according to the locality. Love of home, habit, the 
difficulty of moving and finding houseroom, and 
sometimes differences of dialect, are all obstacles 
to a uniform rate of wages. In France, in the neigh- 
bourhood of Paris, a journeyman can earn twice as 
much as in the midlands, and in Belgium, out of 
two country districts, in one, the Campine, he gains 
a shilling a day, in the other, the Ardennes, 
nearly half-a-crown ! 

§ 4. Low Wages not a Cause of Cheap \A^ork. 

The great railway contractor, Mr. Brassey, after 
having employed labourers in every country in the 
world, has written a book, called Work and Wages, 
to prove that cheapness of work is obtained by 
paying good wages. An ill-paid workman is weak 
and indolent ; the work hangs fire and ends by 
costing dear. Mr. Brassey's advice is to insist on 
energy and industry, and pay well. Every one will 
benefit by this system, workman, employer, and 
society at large. 



Distribution and Circulation. 147 



§ 5. The Wages Fund. 

Many economists have believed that in every 
country, at any given moment, there exists a fund 
specially devoted to the reward of labour. In this 
way an average rate of wages is imposed upon all 
alike, and this of necessity, since when each work- 
man takes his share of the fund, the value of the 
share is the result of the amount of the fund divided 
by the number of the workmen. Neither the 
resistance of the workmen nor the watchfulness of 
the master can modify this mathematical law. If 
you give more to one, there will be less for the 
others. The average rate of wages will only in- 
crease, if the wages fund increase more rapidly than 
the number of the workmen. 

The truth of the matter is as follows. The nation 
lives on the sum total of the useful articles which it 
produces. It cannot consume more than this, but 
the manner in which this fund is divided between 
rent, interest, wages and profits, depends on contracts, 
custom, and the will of the parties concerned. The 
one thing true is that if one of these parties obtains 
more, one or all of the others will have less. 

In this way since 1870, the extraordinary activity 
of industries in Europe has occasioned a general rise 
of wages. It is rent which since this date has been 
diminished. 

The problem may be presented in the following 
form : 

Product = Rent + Interest + Wages -|- Profits. 

L 2 



148 Elements of Political Economy. 

If the share assigned to wages is increased, the 
balance which is divided among the other participators 
must diminish, for Product — Wages = Rent + Interest 
+ Profits. To take a more simple proof : a market gar- 
dener who pays two shillings a day to the labourer he 
employs on a garden which brings in four shillings a 
day will have two shillings to keep for himself. If 
he is obliged to pay his labourer three shillings, 
plainly he himself will only have one. 

§ 6. Is there a Natural or Normal Wage ? 

Economists of the school of Picardo maintain that 
there is a natural rate of wages, which is determined, 
like the price of any other commodity, by the cost 
of production of labour. 

The cost of production of the commodity labour is 
the sum which is absolutely necessary to enable the 
labourer to live and work. 

Undoubtedly wages have often been as low as this, 
and history teaches us that frequently they have not 
even sufficed to support the labourer, since whole 
populations were decimated by famine, as in the 
reigns of Louis XIY. and Louis XV. But this was 
the effect of detestable institutions and of human 
ignorance, not of any so-called natural laws. 

The normal rate of wages is that which, at the 
least, supplies the labourer and his family with the 
means of subsistence, and of the normal development 
of the faculties of body and mind. 

If it be asked " Who shall determine the sum 



Distribution and Circulation. 149 

which this subsistence and the normal development 
of the faculties demand ? " I answer " The science of 
health." This problem, so often declared insoluble, 
is solved every day in the administration of the army 
in the different countries. This administration fixes 
the amount of nourishment and the quality of the 
clothes necessary to keep the soldier's powers in good 
condition. Ought not the labourer to be able to 
earn by his work at least the rations of a soldier ? 

§ 7. The Causes which fix the Rate of Wages. 

Are wages, as some economists assert, in proportion 
to the productiveness of labour? It would seem 
that they ought to be so. If labour produced twice 
the amount of useful articles, surely the labourer 
ought to be twice as well off. This, however, is not 
the case, except when he is also the possessor of the 
capital, as in the instance of the peasant proprietor. 

The pay given simply as wages is determined by 
other causes. The increase of production profits, in 
the first place, the manufacturer, and subsequently, 
by the fall of prices, the general public. A manu- 
facturer sets up in his factory a machine which 
enables the workman to produce each day ten times 
as much as he could do by hand ; if no greater 
dexterity is required from him his wages will not be 
increased. All the advantage of the machine will 
go to the manufacturer, nntil there comes a fall of 
prices consequent upon the increased ease and 
abundance of production. Again, by giving his 



150 Elements of Political Economy. 

orchard a double layer of manure a market gardener 
may double his crop of apples. He will not make 
this a reason for paying high wages to the labourers 
who gather them, though their real wages may in- 
cidentally be increased by the fall in the price of apples. 

It is plain that the productiveness of labour only 
acts indirectly on its market value by multiplying 
useful objects, and thus enabling the wage earners to 
buy more of them. 

What regulates wages is the competition between 
the labourers offering their work and the masters in 
need of it. As Cobden said with great force, when 
two workmen are running after one master, wages 
fall ; when two masters are running after one work- 
man, wages rise. In other words, wages are subject 
to the great law of supply and demand which will 
be explained later on. 

To this rise and fall of wages, however, there are 
certain limits. They cannot fall below what is ab- 
solutely necessary for the labourer to subsist ; in that 
case he would disappear altogether. On the other 
hand, they cannot rise beyond the total of the value 
added to the object. As has been well observed, the 
piece of work which is only just worth doing brings 
in very little, and if the wages to be paid exceed 
this little, the work will never be ordered or bought. 

A journeyman shoemaker makes a pair of shoes 
worth eight shillings with leather worth three ; 
under no circumstances can his pay exceed five 
shillings. From the increase of value created by 



Distribution and Circulation^ 151 

the wage-earner, something nniust be deducted to 
reward the employer and the capitalist, or the one 
would cease to employ workmen, and the other to 
advance money. 

With the reward of his labour, say Proudhon and 
Karl Marx, the workman cannot buy back the 
product of his labour ; he is therefore robbed by the 
capitalist. The socialists who talk thus make an 
error of calculation. The object has not been pro- 
duced solely by the exertion of the workman, but by 
his exertions aided by tools and employed on raw 
materials. It is true that labour alone is active, but 
it only becomes productive by the cooperation of 
capital and nature. This cooperation has an equal 
right to reward. If the workman can make himself 
the proprietor of the tools and materials he requires 
in his work, he will be able to keep the whole of the 
product. The aim of the wage-earner must therefore 
be to become a proprietor. 

Wages rise when a large number of workmen are 
required, and this is the case when industrious and 
enterprising persons abound, and there is plenty of 
capital. The way, therefore, to improve the condition 
of the working classes is to encourage the creation of 
capital by thrift and the development of education 
and the spirit of enterprise. On the other hand, 
waofes diminish when the numbers of the vrorkmen 
are increasing more rapidly than the undertakings 
and capital which can employ them. Here we touch 
on what is called the population question. 



152 Elements of Political Economy. 

The competition between masters requiring work- 
men, on the one side, and workmen requiring 
masters, on the other, only influences each branch of 
labour separately. A demand for a number of tailors 
will raise the wages of tailors but not tbose of other 
trades. Nevertheless if several industries are simul- 
taneously so prosperous as to require a large number 
of workmen, for a time the rise of wages will spread 
by degrees up to a certain point, inasmuch as the 
rush of workmen to these trades will cause a 
deficiency in others. 

§ 8. Has the Condition of the Working Classes 

Improved ? 

No one will maintain that the condition of those 
who work with their hands is all that it should be, 
but it is certain that it has improved and is still 
improving every day. Let any one who has doubts 
on this subject enter the cottage of the worst paid 
agricultural labourer, and examine his food and 
clothing, utensils and furniture, and then let him 
read the famous passage in which La Bruyere 
described the French peasantry of the reign of 
Louis XIY. 

" Spread over the country are to be seen certain 
wild animals, of either sex, black, livid and sun- 
scorched, chained to the earth which they dig and 
turn with unyielding persistency. They have what 
may be called an articulate voice ; when standing 
erect they show a human face ; in fact they are men. 



Distribution and Circulation. 153 



At night they retire to their dens, where they live 
on black bread, water, and roots. They spare other 
men the trouble of sowing, digging and reaping for 
their food, and so ought not to lack this bread which 
they have sown." 

In 1740 Massillon, Bishop of Clermont-Ferrand, 
wrote to Cardinal Fleury, Prime Minister of Louis XY: 
"The country people live in frightful misery, 
without beds, without furniture; one half of the 
year, the greater part of them eat hay and barley- 
bread, their only food, and this they are obliged to 
snatch from their children's mouths, to pay the taxes." 

When we think of the time when men died of 
hunger in crowds along the high roads, we shall see 
no reason to despair of our own days, while we hope 
still better things for the next century. 



CHAPTER VI. 

MEANS OF IMPROVING THE CONDITION OF WAGE 

EARNERS. 

In past centuries the rich and powerful always 
sought to reduce the share of the labourers in order 
to increase their own. Our own century, however, 
appears to have undertaken the duty pointed out 
by the famous reformer, Saint-Simon, of improving 
the material, intellectual, and moral condition of the 



154 Elements of Political Economy. 

working class. The means of arriving at this result 
is nothing less than the social problem of the day. 
Let us examine some of the solutions proposed. 

§ I. Charity. 

Formerly benevolence knew but one way of assist- 
ing those who were called "the poor," namely, by 
almsgiving, and in their sublime enthusiasm the 
charitable would sometimes go the length of aban- 
doning all they had to embrace voluntary poverty. 
But economic analysis has demonstrated that alms- 
giving mulcts labour for the support of needy idleness. 
It diminishes responsibility and self-respect, weakens 
the incentive to activity, and thus only fosters misery. 
Of this the effect of the daily distributions of food 
made by the convents under the old system furnishes 
an ample proof. 

There will always be involuntary misfortunates to 
relieve, but it is not to charity that we must look for 
the final improvement of the lot of the majority. 

§ 2. Communism. 

Communism has alternately been the war-cry of 
the oppressed, as in the insurrections of Spartacus, 
Wat Tyler, the Jacquerie, and the peasants in the 
time of Luther, or the dream of some great mind, as 
with Plato in the BepiMic, Sir Thomas More in the 
Utopia (1516), Campenella in the Civitas Solis (1620), 
and Fenelon in the Salente of the Telemaque. 

The Essen es in Judsea, the disciples of Pythagoras 



Distrihution and Circulation. 155 

in Magna Graecia, the first Christians in Jerusalem, 
were alike in having all things in common, and in 
our own day monastic societies multiply on the Con- 
tinent with their vows to annul the distinction 
between " mine " and " thine." We have here the 
application of the saying of J. J. Rousseau, " Beware 
of forgetting that the fruits of the earth are every 
one's, and the earth itself no one's." 

In this system the means of production are the 
property of the society. The principle which governs 
the division of the produce is the rule, " From each 
according to his strength, and to each according to 
his needs." The society constituted on this basis 
would be the copy of the family economy, in which 
each member does actually labour as much as he can, 
and consume as much as he wants. 

Communism, however, will never' attain perma- 
nence, since it violates justice and despises the 
deepest instincts of man's nature. The formula of 
justice is Cuique suimiy " to every man his own," or 
" to each according to his works." Communism, on 
the contrary, takes no account of works, and recog- 
nises no " his own." The industrious are made the 
dupes of the sluggards who trade upon them. 

The spring of human activity is always and every- 
where self-interest. In communism self-interest is 
continually sacrificed ; if it acts at all it is to impel 
men to sloth and gluttony, for where needs are the 
measure of rights, that man will look out best for 
himself who shall eat the most and work the least. 



156 Elements of Political Economy. 

If convents continue and even increase, it is only by 
uprooting from the hearts of their inmates the deep- 
est of natural feelings, the craving for independence, 
the love of self, and family affections. It is the hope 
of heavenly happiness that works the miracle. 
Egoism is not really dead, for it endures as long as 
life; but its aim has been transferred to another 
world. Who can believe that an industrial society 
can be organised on the principles and the plan of a 
convent ? " Communism," said the socialist Proudhon, 
** means the disregard of work, the weariness of life, 
suppression of thought, destruction of the self, and 
affirmation of chaos." 

§ 3. Nihilism. 

A Russian revolutionist, Bakounine, comes before us 
with the assertion : the labourer is robbed, crushed, 
reduced to misery by all those institutions which 
take the assurance of his welfare as their mission, 
the state, royalty, religion, the army, property, and 
the family. Man will only be free and happy when 
of existing society not one stone shall rest upon 
another. Everything must be annihilated : nihil, 
" nothing," this is the goal. Nihilism will bring 
salvation. 

If he be asked what new organisation it is proposed 
to adopt, Bakounine replies that he interdicts both 
himself and us from seeking one. Every utopist is 
a tyrant, for he would like to impose the organisation 
which he believes the best. The gospel of nihilism 



Distribution and Circulation. 157 

is " shapelessness," that is to say, the absence of any- 
social organisation; the one best adapted to en- 
franchised humanity will spring spontaneously from 
the people. 

The ascetics of the first centuries of Christianity, 
and the believers in the millennium, thinking society 
irretrievably abandoned to wickedness, expected its 
renovation from a cosmic cataclysm. Out of the fire 
that consumed the world were to issue " a new 
heaven and a new earth." Justice would triumph, 
and the reign of Right begin. Rousseau, in his 
despair of remedying our vices and iniquities, would 
lead humanity back to its primitive forest. It is the 
same sentiment, pushed to the verge of madness, 
which gives birth to nihilism. Such a doctrine there 
is no need to combat. Indeed, how is it possible to 
argue against and refute " that which is not " ? 

§ 4. Anarchy. 

Among existing socialists many call themselves 
anarchists, that is to say, adversaries of every form 
of government, from the Greek word, dvapx^ct, which 
means " the absence of a governing power." 

If these socialists simply aim at reducing the 
powers of the state to a minimum, they are, in this, 
in agreement with the " non-interference " school of 
economists. If they really take the suppression of 
the state as their aim, they must wish to lead us 
back to a condition of prehistoric savagery, in which, 
in the absence of all law and authority, violence 



158 Elements of Political Economy. 



carries the day, and the weak, as among animals, are 
devoured by the strong. 

§ 5. Collectivism and the Organisation of 
Labour. 

Existing sociahsts reject communism, but preach 
the gospel of collectivism. Like communism, col- 
lectivism assigns to society the possession of the 
materials of production, and the instruments of 
labour, that is to say, land, mines, railways, and tools 
of all sorts. In the division, however, of the produce, 
they admit the principle of a reward proportionate 
to the work done, and in this way do not suppress 
responsibility or the stimulus of private interest. 
But who is to be the proprietor of the means of 
production, the state, the commune, or the corpora- 
tion of workmen ? The system is so imperfectly 
formulated that it is difficult to discuss. 

In his famous book, L' Organisation du Travail, M. 
Louis Blanc proposed that all industries should be 
functions of the state, as is the case at present with 
the working of the railways in Belgium, and this is, 
roughly speaking, the proposal of the coUectivists of 
to-day. If it were adopted it would follow that 
every one would be a Civil servant, and that the 
whole society would be organised like an army. 
At present the workman who does not work is 
dismissed. If all industries were in the hand of the 
state, dismissal would be no longer possible. It 
would have to be replaced by the police-cell or the 



Distribution and Circulation. 159 

prison. The spring of productive activity would no 
longer be the initiative of the individual, but passive 
obedience and compulsion. 

Industrial progress is attained under the present 
system, because every manufacturer endeavours to 
make cheaply and sell largely, so as to make larger 
profits. But who would find it his interest to 
improve its processes of production, if every one were 
paid by a salary ? 

The cessation of progress and a universal despotism 
regulating every action of the economic life, that is 
what would be the world's condition ! 

§ 6. Cooperative Societies. 

In a cooperative society for production the workmen 
supply at once the capital and labour, and the union 
of these two factors in the same hands brings the 
antagonism between capitalist and labourer to a 
natural end. It has been thought to find in this 
union the solution of the social conflict. Unfortu- 
nately the management of an industrial undertaking 
is a difficult task. The majority of workmen are as 
yet incapable of it, and any adequate remuneration 
to the managers and head employes appears to them 
a violation of the piinciple of equality. Cooperative 
societies have generally failed owing to the incapacity 
or dishonesty of the managers. A joint-stock com- 
pany with the workmen as shareholders, would offer 
the same advantages, and probably succeed better. 

It must not be forg-otten that in the economic 



160 Elements of Political Economy. 

world, just as in the political, authority is indispen- 
sable. In a manufactory, as on board ship or in the 
state, there must be a master in command, and 
subordinates to obey him ; if not, we have a condition 
of anarchy, disorder and ruin. Up to the present 
workmen vfho choose their masters show themselves 
as ignorant of how to obey them as soldiers who 
elect their captain. 

§ 7. Emigration. 

Emigration only brings about a rise of wages 
when it abruptly carries off a large part of the popu- 
lation without disturbing industry, as in the " exodus " 
which, after the famine of 1847, carried off from 
Ireland three of its eight millions of inhabitants. 
Slow emigration, like that which ships from Germany 
its rne to two hundred thousands a year, has no effect 
on wages beyond preventing their decrease. The births 
fill up the void ; and in the absence of any diminu- 
tion in the supply of hands, wages do not increase. 

§ 8. Corporations and Trades Unions. 

Formerly the workmen of any given trade formed 
a close corporation, admission to which could only 
be obtained after a long apprenticeship and severe 
tests. In this way no one not a member of the 
corporation of locksmiths might make a lock. The 
performance of certain kinds of work was a monopoly. 
A man was permitted to starve, but not to earn a 
livelihood by his skill. In the edict of 1776 Turgot 



Distribution and Circulation. 161 

affirmed, "The right to labour is the possession 
of all, and the first and most inalienable of all 
possessions." 

Nowadays the old corporations have disappeared, 
but the enfranchised workmen finding themselves 
weak in their individual isolation, have once more 
banded themselves together according to their crafts, 
though in no case with any exclusive privileges. 
These " Trade Unions " reckon a considerable num- 
ber of members in England and America. By 
means of a weekly pa3^ment they form a relief-fund, 
and assemble for deliberation and common action 
towards raising wages. Their weapons are coalitions 
and strikes. 

§ g. Coalitions and Strikes. 

Workmen from time to time endeavour to obtain 
an increase of wages by coalescing to exact it and 
refusing to labour, that is to say by going out on 
strike if their demands are not satisfied. Strikes 
are of common occurrence in England — 2,352 in the 
ten years 1870-1879 — inasmuch as the workmen 
associated in the trades unions, by means of weekly 
contributions form a fund which is employed, at 
need, for the support of the men on strike. 

The strike is organised in one manufactory, in 
the others the workmen continue to labour and pay 
wages to those out of employ. In the end the 
employer is compelled to yield. In order to avoid 
being thus one by one beset and reduced to terms 

M 



162 Elements of Political Economy. 



the masters reply to the strike by the lock-out, that 
is to say by a complete stoppage of work, a step 
which forces the workmen to speedy submission, for 
want of funds to maintain the struggle. 

These strikes are the cause of great suffering, 
especially to the workmen. Mr. Bevan, a statistician, 
has calculated that one hundred and twelve strikes 
have cost as many millions by loss of wages. Some- 
times, in certain localities, they have destroyed an 
industry altogether. 

Strikes can only raise wages when economic laws 
permit, that is to say, when profits are high ; on the 
Continent they more often only take place when the 
manufacturers are reduced to extremity and cannot 
pay labour better without ruining themselves, and, 
as a result, rendering the lot of their workmen 
still worse. 

To avoid strikes recourse is now had in England 
to two expedients. 

(1) Arbitration, in which masters and workmen 
lay their arguments before a competent judged who 
is chosen by agreement to decide the dispute. 

(2) The fixing of wages according to the selling 
price of the produce, by what is called the sliding 
scale. Example : a rise or fall in the price of iron 
effects a proportionate rise or fall in the wages of 
the workmen who produce it. 



Distribution and Circulation. 163 



§ 10. Increase of Capital and Diffusion of 
Property. 

Economists assert that the only means to improve 
the condition of the labourer is to increase capital. 
The increase of capital, if not accompanied by an 
increase in the number of workmen, will have as its 
effect a rise of wages. Nothing can be more exact 
than this statement ; but the means it describes are 
insufficient. The growth of capital has a limit, and 
this limit is conceivably attainable. We can already 
catch a glimpse of it, though the reward of labour 
has none the less failed to become sufficient. What 
is needed is that the increment of capital should pass 
in a great part, into the hands of the labourers them- 
selves by the help of good laws and thrift. 

Thus to preach thrift to those who, it is owned, 
have not even enough for necessities, may seem at 
first a cruel mockery. It is true that they lack 
necessaries ; yet how much money they spend on 
such, to them, deadly superfluities as alcohol and 
tobacco ! If workmen would save only the vast 
sums which they devote to the alcoholic beverages 
which brutalise them, in twenty years they could 
buy every factory at which they work. It is thus 
from the practice of certain virtues such as prudence, 
continence, and sobriety, that help caii alone arrive. 



M 2 



164 Elements of Political Economy. 



§ II. The Relation Between the Rise of Wages 
and the Increase of Population. 

If population increase more rapidly than capital, 
and above all, than the means of subsistence, no 
reform can permanently improve the lot of the 
poorest classes, for the fairest division of the pro- 
duce will only yield to each of them an insufficient 
reward. 

J. S. Mill is therefore right in his assertion that 
in political economy the question of population 
dominates every other. 



CHAPTER YII. 

ON THE INCKEASE OF POPULATION. 

Is the increase of population to be dreaded ? Two 
opposite opinions have long existed on this subject. 
In the cities of ancient Greece, where space was 
limited, philosophers, politicians, and legislators, be- 
lieved that the increase of the number of citizens 
was an evil which had to be remedied, even by 
means which make us shudder. In Rome, on the 
other hand, where the want of men was felt, large 
families were honoured and celibates punished. So 
too in the seventeenth and eighteenth centuries 
when the country was nearly everywhere de- 
populated by despotic governments, it was thought 



Distribution and Circulation. 165 

necessary to favour in every way the multiplication 
of the human race. Thus we find Montesquieu 
saying that, " population is always a gain," and 
Rousseau that, "there is no worse dearth for a 
nation than that of men." 

Most economists, however, agree with the opinion 
that " it is more necessary to multiply the means of 
subsistence than men," and are concerned at too 
prolific marriages, because they increase the number 
of mouths to fill, while politicians and conquest- 
loving kings lejoice at them as swelling the 
numbers of their soldiers. 

Malthus, whose name is inseparably connected 
with this question, has expounded in two thick 
volumes the following theory. The human race 
tends to increase more rapidly than the means of 
subsistence. It advances in a geometrical progression 
by continuous multiplication, like the numbers — 

2x2 = 4x2 = 8x2 = 16x2 = 32 x2 = 64. 

The means of subsistence, on the contrary, increase 
in an arithmetical progression by continuous addition, 
like the numbers — 

2 + 2 = 4 + 2 = 6 + 2 = 8 + 2 = 10 + 2 = 12, 
and thus equilibrium soon ceases to exist between 
the number of mouths to fill and the amount of 
nourishment available to fill them. If these two 
laws of progression are not in reality observed, it 
is because the increase of population is stopped by 
certain repressive forces. But these forces are the 



166 Elements of Political Economy. 

very scourges under which humanity groans, such as 
disease, famine, war, and, above all, misery. To 
escape these the only way is to arrest the excessive 
multiplication of the race by moral constraint. 

While abandoning the mathematical formulas of 
Malthus, J. S. Mill has re-stated his theory in the 
following propositions, which appear unassailable. 
The human race, when not odiously ill-governed, 
tends to increase. As a matter of fact, it doubles 
its numbers within a period which varies in each 
country. This period is of about 80 years for the 
United States and Java, and from 125 to 150 for 
France; the annual increase per 10,000 inhabitants 
being 26 for France, 98 for Belgium, 101 for 
England, 115 for Germany, and 260 for the United 
States. On the other hand, the number of acres 
of arable land is limited in each country, and in the 
earth as a whole, and the quantity of food which 
each acre is capable of producing can only increase 
in a certain measure. Thus a want of equilibrium 
must sooner or later occur between the increase of 
the race, which is unlimited, and the increase of 
food, which is limited. The time when this want of 
equilibrium will produce a famine is doubtless 
distant ; but long before this last extremity is 
reached, the increasing demand for the agricultural 
produce won from the limited soil will cause a rise of 
prices and a greater difficulty in living which will 
only be diminished, even momentarily, by improve- 
ments in the art of agriculture. 



Distribution and Circulation. 167 

Many writers have rejected these gloomy fore- 
bodings. Here are some of their objections. 

(1) Matter, says Carey, takes the form of lower 
organisms more easily than that of higher. There- 
fore there will always be more herbs and roots than 
bullocks and sheep, and more bullocks and sheep 
than men. A manifest error, for already in densely 
populated countries, there is not enough meat 
produced for everyone to have the quantity necessary 
for health. 

(2) The density of population increases the pro- 
ductiveness of labour, by finding employment for 
more capital. This is true, but the question is not 
one of industrial products in general, but solely of 
food ; and a hundred bales of cloth will not feed a 
single child. 

(3) It is said that if we restore to the soil as much 
as is taken from it, a circulus is . created, i.e. a circle 
of life from which humanity can always draw the 
means of maintaining its own. Here the advice is 
excellent. Let us restore to the earth even more 
than it gives us, and enrich it with elements of fer- 
tility extracted from inorganic substances. Never- 
theless with too much manure the corn lies and rots ; 
and here we find our limit. 

(4) The world has innumerable fertile plains unoc- 
cupied, to which the inhabitants of countries where 
the population is too dense can emigrate. It has 
been calculated that there is abundant space on our 
planet for twelve thousand million human beings, 



168 Elements of Political Economy. 

and tliere are not as many as fifteen hundred millions 
in existence. Moreover commerce, in its ever-de- 
veloping freedom and activity, brings to the countries 
of our old continent the products of all the virgin 
soils in increasing quantities. All this is true, but it 
does not upset the other truth, demonstrated by J. S. 
Mill, that if population always continues to increase, 
the time must come when the most perfect system of 
agriculture will be unable to produce sufficient food. 
Such a state of things has been already reached in 
Flanders, with its more than two inhabitants to every 
acre, and in Oudh in India, where the population is 
almost equally dense. 

Is there then no loop-hole ? Will men grow too 
numerous and be reduced to devour each other for 
lack of food, and shall our race at the end of this 
progressive development of which it is so proud, end, 
as it began, in simple cannibalism ? Not so ; but it 
wdll find a refuge in that true progress which may be 
summed up in the three words, more light, more 
virtue, more justice. 

Increase of light will make the life of the spirit 
triumph over that of the brute that is in us. In- 
crease of virtue will lead us to greater prudence and 
continence. Lastly, increase of justice, by securing 
to each man the full enjoyment of the fruits of his 
labour, will make proprietorship more general, and 
so supply the well-attested antidote to the excessive 
multiplication of our species. 



Distribution and Circulation. 169 



CHAPTER VIII. 

PROFIT. 

§ I. Meaning and Reason of Profit. 

Profit is the reward of the labour of the employer. 
This reward is uncertain, variable, speculative ; for 
the employer disburses fixed sums for rent, wages, 
and interest, without knowing how much the sale of 
his productions will return him. At the end of the 
year he calculates the total cost of his business, and 
deducts this from the sum of his receipts. The dif- 
ference is his profit. Profit is, therefore, the surplus 
of the price obtained for productions over the costs of 
all kinds which have been incurred in creating them. 

There are two elements in profit. The first rewards 
the skill and energy of the proprietor, and therefore 
increases in proportion to the greater knowledge and 
preparation which an industry demands, and the 
fewer attractions it possesses. It varies greatly in 
every industry according to the qualities of the 
individual proprietors, for it is on these that success 
principally depends, so that where one man is ruined, 
another makes a fortune. 

The second element is risk. The farmer sows a field 
without any means of knowing what the crop will be 
worth, or whether it will not be destroyed by hail. 
The incidental risks must be covered by a premium of 



170 Eleinents of Political Economy. 

insurance which goes to increase the profit ; the more 
risky the undertaking the greater ought the profit 
to be. 

Profits will tend to a uniform level in all the 
different industries, inasmuch as enterprising men of 
business, furnished with fresh supplies of capital, 
engage in such industries as offer any unusual returns. 
This levelling process, however, is never accurately 
effected, since the fluctuations of industry and trade 
cause perpetual variations in the rate of profits. 

§ 2. Is the rate of Interest in Inverse Propor- 
tion to the rate of Wages ? 

Considering the wealth produced as a fixed quan- 
tity, Ricardo and his school have deduced from this 
that profits can only increase at the expense of 
wages. If an employer can pay exceptionally low 
wages, it is certain that the decrease in his expenses 
will increase his profit. His competitors, however, 
will soon obtain the some advantage, and the diminu- 
tion in the cost of production will be followed by a 
fall of the selling price, and profits return to their 
former rate. 

The truth of the matter is rather that profit, being 
also the reward of labour, will rise and fall simul- 
taneously with wages. Where large profits are made 
the workmen can and ought to be well paid. In the 
United States profit and wages are high. In the 
States of Western Europe they are both much lower. 



Distribution and Circulation. 171 



§ 3. Profits tend to Diminish. 

The greater the productiveness of labour, the better 
will both master and workmen be rewarded by the 
large products which it creates. In a new country 
where the sources of wealth are numerous and little 
worked, masters and workmen can make large gains. 
In an old country, where every source has already 
been worked, persistent labour is needed for a liveli- 
hood, and skill or exceptional good fortune to make 
a fortune. Profits thus tend to diminish in proportion 
as the field of employment is limited when compared 
with the number of those who seek to employ their 
faculties, their arms, and capital. 

The fall of profits is arrested by every improvement 
in the processes of labour by which it is enabled 
to produce more at a less cost. Eailroads, for ex- 
ample, have given many people the opportunity of 
enriching themselves. In this may be seen the 
benefits which science confers alike upon master 
and man. 



CHAPTER IX. 

THE REWARD OF CAPITAL. 

§ I. What Interest is. 

The third factor which contributes to production 
is capital, and this, like the others, must be rewarded. 
The reward which it receives is called interest. 



172 Elements of Political Economy. 

For replaceable and circulating capital, which is 
consumed by the borrower, interest is usually reckoned 
at so much per cent, the year, e.f/. five pounds for 
a year's loan of a hundred. For fixed capital which 
the borrower has to return in its original form, the 
reward is proportionate to the service rendered and 
the probable depreciation. 

Two elements may be distinguished in the interest 
which is paid for the enjoyment of a capital : the 
first, an insurance premium to cover the risk of loss ; 
the second, simply the hire of the capital. In a 
country where there are bad laws and bad judges, the 
lender of capital runs the risk of never recovering 
it ; he will therefore stipulate for a premium at a 
sufficiently high percentage to at least cover this risk. 
It is for this reason that the rate of interest is always 
very high in the East — as much as fifteen or twenty 
per cent., or even more. The only means of reducing 
it is to make good laws and appoint upright judges. 

The lender deprives himself of the use of his 
capital ; the borrower enjoys and profits by it. It is 
therefore only natural that the second should pay 
the first an idemnity, or hire, for this enjoyment. 
This is the second element of interest. 

The rate of this hire will be high if there are few 
lenders compared to the number of borrowers, low if 
there are many lenders and few borrowers ; and this 
in accordance with the general law of supply and 
demand. Lenders in search of an investment will 
be numerous when there are many persons rich 



Distribution and Circulation. 173 

enough to be able to save, and sufficiently eco- 
nomical to wish to do so. In Holland in the seven- 
teenth century interest had fallen to three and even 
two per cent. Every one worked and traded, and no 
one spent all his income. Descartes was greatly 
struck at this circumstance. Ihi nemo qui non exercet 
mercatiiram, was his exclamation. Borrowers, on the 
other hand, abound when the spirit of enterprise is 
developed, and at the same time nature offers numer- 
ous remunerative employments to industry. In the 
United States, the majority of undertakings, such as 
the cultivation of virgin soils, the purchase of build- 
ing ground, construction of houses, mines, factories 
and railways, yield profits as large as ten, twenty, or 
thirty per cent. Although, therefore, there is no 
deficiency of capital, enterprising men are ready to 
pay six and eight per cent, a year for the use of it. 
Great fortunes are quickly made, and several cases 
might be cited of twenty millions sterling having 
been accumulated in a few years. 

§ 2. Interest tends to Diminish. 

In countries like England where there is a dense 
population and wealth has long been abundant, the 
rate of interest tends to diminish for two reasons ; in 
the first place, because the value of capitals which 
thrift is continually creating is reduced by their com- 
petition, and, in the second, because the fields of 
employment, i.e. the improvable sources of wealth, 
are ever diminishing. 



174 Elements of Political Economy. 

The means of arresting this tendency of the rate 
of interest in rich countries to fall, would be the 
employment of capital in foreign investments, the 
discovery of new sources of wealth, or the progress 
of industry in certain directions, which, as in the case 
of railroads, require costly but remunerative advances. 
From 1850 to 1870 the rate of interest rose in 
Europe because all over the world electric telegraphs, 
both inland and submarine, railroads, canals for 
transport and irrigation, new factories, banks, gas 
companies, and profitable enterprises of all sorts 
were able to use and richly reward all the capital that 
was amassed. 

When everywhere all the great undertakings shall 
have been accomplished, and every industry have the 
most perfect m )ans of production at its disposal, the 
time will come when new capital will no longer find 
remunerative employment. This is what J. S. Mill 
calls the stationary state, and he regards it as a 
happy one for humanity, which, he says, lias not been 
created to weary itself for ever in the pursuit of 
wealth ; and Mill is right. The life truly worthy of 
our high destinies is that of the Athenian citizen in 
the time of Socrates, occupied in philosophy, art and 
public affairs, but with the added condition that the 
one half of the day shall be devoted to some sort of 
productive labour. 

The extreme limit to the fall of interest is the 
point at which the reward of thrift shall become 
insufficient to cause the renunciation of the immediate 



Distribution and Circulation. 175 

consumption of the wealth produced. When a 
saving of a hundred pounds shall bring in no more 
than ten shillings the year, the number of savers 
will greatly diminish, though we should not forget 
that simple anxiety for the future is often a sufficient 
inducement to cause money to be hoarded in a chest, 
where it will bear no interest at all. 

When the reward of capital shall no longer be 
sufficient to attract to new savings, the time will also 
have come when humanity will have at its disposal 
all the necessary means of production, and so long as 
it keeps these in good repair it will be able to devote 
the whole product of each year's labour to immediate 
enjoyment. This time is still far distant. 

§ 3. The Lawfulness of Interest, and the Laws 
against Usury. 

Moral sentiment throughout antiquity, Aristotle, 
the Withers of the Church, and ecclesiastical law, 
have united in condemning all interest in the 
severest terms as a theft and even a homicide. 
Cato remarked : Majoresitain legihus posuerimt furem 
dupli cond^emnari, fenatoreni q;itadrupli — " The laws of 
our fathers condemned the thief to restore double, 
and the usurer quadruple ; " and in his time it was 
still asked at Rome, Quid est fenerari ? Quid est 
hominem occidere ? — " What is lending at interest ? 
What killing a man ? " 

This condemnation was dictated, in the first place, 



176 Elements of Political Economy. 

by an error as to the nature of capital, in the second 
by the sight of the evils which actually resulted from 
lending at interest. 

As regards the error as to the nature of capital, it 
was believed that capital consisted exclusively of 
silver and gold, which are " barren." " Interest," 
says Aristotle, "is money born of money, and of all 
acquisitions is the most unnatural." The same idea is 
found again at Rome : Nummus non j^ctrit mtmmiom — 
" One coin does not give birth to another," and, truly 
enough, a sovereign will not at the end of a year 
produce a shilling to pay its hire. 

The ancients, however, were deceived by appear- 
ances. Silver and gold, it is true, produce nothing, 
but they are only the means of reaching provisions, 
tools, machines — in a word, capital, which last is 
essentially productive, since it is, thanks to this, that 
anything is produced by labour. In the words used 
by Bentham in answer to Aristotle, " one gold daric 
cannot give birth to another, but with this piece of 
money I can buy a ram and a sheep which will yield 
me lambs, whence a whole flock may be born. 

In ancient times the evils caused by the lending 
money at interest rendered the custom odious, because 
most often it was the wretched who borrowed for the 
means of subsistence, not to make a profit from the 
loan. The interest of the debt devoured the capital, 
and the borrower was soon reduced to misery and the 
mercy of his creditor. Such was the history of the 
plebeians at Rome. Whoever reads the Law of the 



Distribution and Circulation. 177 

Twelve Tables will understand why, to escape their 
creditors, the people fled the city and took refuge 
on the sacred mount. Here is an extract on the 
subject : 

Aeris confess! rebusque jure For the payment of an acknow- 
judicatis triginta dies justi ledged debt, or a legal judg- 

sunt. ment, thirty days shall jbe 

allowed by law. 
Post deinde manus injectio esto, On the expiry of these, the 
in jus ducito. debtor shall be seized and 

brought before the magistrate. 
Ni judicatum facit ant is endo If he neither pay nor give surety 
em jure vindicit, vincito aut for the amount, the creditor 

nervo aut compedibus qtiin- shall take him to his home, 

decim pondo, ne minore, aut binding him either with 

si volet majore vincito. thongs or with fetters of not 

less than fifteen pounds weight, 

and of more if he please. 

Tertiis nundinis partes secanto. After the third market day the 

si plus minusve secuerint, se creditors shall divide his body 

frauds esto. into portions, and if they cut 

more or less than their share 
they^hall be free from blame. 

Again, among the Israelites the lending money at 
interest was considered a means of ruin and perse- 
cution, and as such was forbidden between Jews, 
though allowed with respect to the stranger. Thus 
the canon law and the Fathers of the Church in 
condemning interest of every kind were only con- 
forming to the idea of justice which prevailed on 
this subject in Greece, in Rome, and in the Old 
Testament. 

Analysis proves that interest is at once just and 
necessary. It is just, because whoever creates a piece 
of capital, a plough, for example, has a right to be 
rewarded for the sacrifice which he makes in not 

N 



178 Elements of Political Economy. 

consuming at his ease the provisions which have 
nourished him while he was making this new 
instrument of labour. If he lends his plough the 
borrower will obtain a greater profit than if he used 
a spade. Would it be fair that the borrower should 
retain the whole of this increased profit due to the 
employment of the more perfect instrument ? The 
lender and borrower in such a transaction are two 
partners, and it is only just that they should share 
the advantage obtained. Interest is thus only the 
equivalent of the utility daily produced by the article 
of which the enjoyment is lent. 

But interest is not only just, it is also necessary. 
Were it prohibited or suppressed no one would 
economise except to hoard ; all savings, as in former 
times, would be deposited in strong boxes, and this 
reasonably, for why risk losing them without the 
chance of profit ? Little new capital created, and 
no capital lent, would be the result produced. 

Formerly in every country laws against usury 
forbade the exaction of what was considered excessive 
interest, that is to say, interest at more than five or 
six per cent. These laws have now been almost 
everywhere abolished, and rightly, for they were 
useless and even injurious to those whom they were 
meant to protect. Useless, because the lender eluded 
them by stipulating for a commission on each of 
the frequent renewals of the loan ; injurious, because 
they increased the risk of lending with the inevitable 
result of raising the rate of interest. 



Distribution and Circulation. 179 

§ 4. The Influence of the Abundance or Scarcity 
of Money on the Rate of Interest. 

The manufacturer does not care about being able 
to hire the use of money, but of provisions, raw 
materials, tools, machinery, and everything which, 
when set at work by labour, produces useful objects. 
It is, nevertheless, by money or by notes on the 
security of money that possession of these instru- 
ments of production is attained ; and it is under 
the form of money that loans are negotiated. 
Money is a circulating agent which makes things 
pass from one hand to another. It follows, that, if 
money is scarce the means of obtaining the capital f 
necessary to production are more difficult of attain- j 
ment and must be paid more dearly. Just as when 
ships are wanting to convey merchandise, freight 
charges are heavier, so, when the pecuniary means / 
of transport are lacking, interest rises. 

In so far as the possession of objects is passed 
from hand to hand by the employment of bills of 
exchange, the influence of the scarcity of coined 
money on the rate of interest is diminished. Again, 
if this scarcity continue, prices fall, and in this way 
each pecuniary means of transport transfers the 
possession of more articles, until the existing quantity 
of coined money is made sufficient, and its scarceness 
— the cause of the rise of interest — is no longer felt. 



N 2 



180 Elements of Political Economy. 

Part II. 

THE CIRCULATION OF WEALTH. 

When each of the factors who have contributed to 
the creation of wealth, the landlord, the labourer, 
and the capitalist, has obtained his share, he uses it 
to procure the articles which he wishes to consume. 
In order that he may receive, he gives; wealth 
passes from hand to hand, and circulates by 
exchange. 



CHAPTER I. 

EXCHANGE. 

§ I. Barter. 

The simplest form of exchange is the barter of wares 
for wares. In prehistoric times only barter can have 
been in use, and this is still the case among savages, 
where a hatchet is given to obtain a pig, and a nail 
for a bunch of bananas. 

When exchanges multiplied, while at the same 
time occupations were specialised, recourse was had 
to money ; and barter was carried on by the double 
process of selling and buying. 

In the Iliad (Bk vii. 1. 472), when the vessels of 
Lemnos bring wine to the Greeks, " Then the long- 
haired Achaean bought 1hem wine, some with bronze 



Distribution and Circulation. 181 

some with shining iron, some with skins, others with 
live oxen, others with slaves." Here we have primitive 
barter. 

§ 2. Employment of Money: Sale and 
Purchase. 

Aristotle first, and afterwards the Roman juris- 
consult Paulus, have shown to perfection the origin 
and the function of money. This is how the Greek 
philosopher expresses himself: — 

"The use of a currency was an indispensable 
device. People agreed mutually to give and receive 
some article, which, while it was in itself a commodity, 
was easy to handle in the business of life, some such 
article as iron or silver which was at first defined 
simply by size and weight, although finally they set 
a stamp upon every coin as a mark of its value to 
relieve themselves from the trouble of weighing it. 
Money, however, is in itself mere trash, having only 
a current or conventional, and not in any sense a 
natural value, because if the people by whom it is 
used give it up and adopt another, it is wholly 
valueless, and does not serve to supply any want " 
(Aristotle, Politics, i. vi., Welldon s translation). 

The jurisconsult Paulus reproduces the same idea, 
but with greater precision : 

" The origin of sale and purchase is found in barter. 
Money was unknown, and there were no words to 
distinguish the merchandise and the price ; according 
to the needs and circumstances of the moment, 



182 Elements of Political Economy. 



every one bartered what he found useless for what 
was useful, for it often happens that one person has 
in excess that which another lacks. As, however, it 
did not always, nor easily happen, that when A had 
what B wanted, B in his turn had something that A 
was willing to accept, a substance was chosen whose 
value, being legal and constant, obviated the diffi- 
culties of barter by the equality of its quantity. 
This substance, marked' with an official stamp, derives 
its usage and power of payment not from what it is 
composed of, but from its quantity. Henceforth the 
two objects exchanged are no longer both called 
merchandise, but one system only, while the other 
is called price," 

Isidore of Seville {Orig. xvi. 17) sums up the 
doctrine of antiquity in these terms: ''There are 
three things essential in money ] the substance, the 
law, and the form. In the absence of any one of 
these, money ceases to exist." 

The final result of selling and buying is the barter 
of commodities either for other commodities or for 
services. I need food, clothing, and the services of 
the doctor, the lawyer, the judge, or the professor. 
In exchange I am able to offer the objects which I 
produce or the services which I can render. 
Barter takes place, and the needs on both sides 
are satisfied. 

At bottom, the circulation of wealth effected 
by money or its substitutes, amounts to a series 
of barters, which the Roman law defines thus : — 



Distribution and Circulation. 183 

(1). Do ut des. "Gift for gift," e.g., coin for 
wine. 

(2). Do ut facias. " Gift for service," gold for the 
instruction of a son. 

(3). Facio ut des. "Service for gift," work for 
food. 

(4), Facio ut facias. " Service for service," the 
pleading a case for the making a coat. 

§ 3. Influence of Exchange on Prosperity. 

Exchange contributes enormously to the increase 
of wealth : in the first place indirectly by permitting 
specialisation and the division of labour of which we 
have pointed out the marvellous effects; in the 
second place directly, for it increases the utility of 
commodities by causing each object to reach the 
hands of the person to whom it can be most useful. 
Thus a farmer has a horse too slight to labour ; a 
country doctor possesses one too heavy to go his 
rounds. They exchange. The farmer ploughs his 
furrows more easily, and the doctor pays his visits 
more quickly. Each is better suited and gains 
by the bargain; and so wealth is increased. 

In primitive tim.es each cluster of families produced 
nearly everything it consumed. Nowadays exchanges 
are incessantly made, between trade and trade, 
between country and town, between province and 
province, land and land, continent and continent. 
The poorest workman consumes the products of two 
hemispheres. The wool for his clothes comes from 



184 Elements of Political Economy. 

Australia; the rice for his pudding from the Indies, 
the com for his bread from Illinois ; the petroleum 
for his lamp from Pennsylvania ; his coffee from Java ; 
the cotton for his wife's dress from Egypt or Alabama ; 
his knife from Sheffield ; the silk of his neck-tie from 
France. 

With each improvement in the means of communi- 
cation, and the mechanism of circulation, there is 
an increase in the number of exchanges. It may 
thus be said that the progress of economic civilisation 
is measured by the progress of exchange. 



CHAPTER II. 

SALE AND PURCHASE. 

§ I. Price. 

Price, in the broadest meaning of the term, is any- 
thing which is obtained in exchange for an object. 
In its usual meaning it is the amount of money which 
the exchange procures. 

A thing's price is fixed by the competition estab- 
lished between those who wish to sell and those who 
desire to buy it, that is to say by what is called " the 
law of demand and supply J'* 

The supply of an article is the whole quantity 
which there is a desire to sell ; the demand, the 
whole quantity which there is a desire to purchase 



Distribution and Circulation. 185 

accompanied by ability to pay. When the supply 
exceeds the demand, prices fall ; when the demand 
exceeds the supply, prices rise. Much cattle in the 
market and few buyers, prices fall ; little cattle and 
many buyers, prices rise. 

§ 2. Supply and Demand, and the Cost of 
Production. 

The demand for an object is determined by the 
need for it, or, which comes to the same thing, by the 
utility of the object for satisfying a need. The supply 
depends on the abundance or rarity of the object of 
demand. An object is rare, either because it is 
diflScult or costly to produce, as in the case of a 
chronometer, or, as in that of the diamond, because 
nature produces it only in small quantities. 

The demand for corn is very strong, since it answers 
to a need of the first importance. Corn, however, is 
not dear, because the supply of it is always abundant, 
owing to the fact that it is not costly to produce. If, 
however, the supply fails, as it does in a besieged 
town, people will give everything to obtain corn. It 
follows that a slight falling off in the crop suffices to 
cause a great increase in price. This shows that the 
supply of commodities which can be produced at will 
depends on the cost of production. 

The sum required to cover the expenses or cost of 
production has been called the "necessary" or "natural" 
price, and for this reason : — If the current price falls 
below this necessary price, the producer, finding 



186 Elements of Political Economy. 

himself a loser, ceases to produce it ; the commodity 
becomes more rare, and, as a result, prices rise till 
they cover the expenses of production. On the other 
hand, if the current price rises above the cost of 
production, the exceptional profit of the manufacture 
attracts fresh capital, and by the increased production 
prices are made to fall. The current price is some- 
times above, sometimes below, the necessary price, 
but always tends to approach it. 

For articles of which the quantity cannot be 
increased at will a monopoly price is established, 
which depends solely on the demand. The value 
of a picture is the price which the competition of 
picture buyers will force the most eager of them to 
give ; and this because no one can now produce a 
picture of Rubens at any price. 

For objects which can be multiplied, but at an 
ever-increasing expense, the necessary price will be 
equal to the outlay on that portion of those objects 
which shall have cost most to produce. If this outlay 
were not covered by the selling price, the objects 
would cease to be made. Let us suppose that the 
cost of production of coal in some mines is four 
shillings the ton, and in others seven shillings, the 
necessary price will be at least seven shillings. Since, 
if recourse must be had to the less abundant mines 
owing to the inability of the others to satisfy the 
demand, it is necessary that the selling price rise 
sufficiently high to defray the cost of production of 
this more hardly won coal. The same is the case 



Distribution and Circulation. 187 

with corn, and with everything else which can only 
be produced in greater quantities at a greater expense. 
Thus, as we have already seen, the most favoured 
productive agents, since their produce sells at the 
same price while the expenses have been less, 
confer exceptional advantages which give rise to 
rent. 

§ 3. The Just Price. 

In ancient times, and in the Middle Ages, people 
talked of a just price, justum pretium, that is to say, 
of a price proportionate to the value of the object. 
The only equitable basis of exchange must be the 
equality of value of the objects exchanged. If for 
4/. I give a heifer worth 8/. I lose by the bargain, 
and whoever buys the heifer is enriched at my 
expense. When the loss incurred exceeded half the 
value, the Roman law permitted the sale to be re- 
scinded, and the French code has sanctioned the same 
principle. Plato condemns those who try to sell corn 
at more than its value, by concealing the fact of a ship's 
arrival which will diminish its price, and St. Augus- 
tin blames those whose only thought is to sell 
dear and buy cheap, vili mile emere et caw mndidere 
(Be Trinit xiii. 3). 

Modern economists do not admit the conception of 
2i, just price. According to them the price accepted 
by the two parties is always just. The reason of 
this is that they derive justice from convention, while 
in reality convention must conform itself to justice. 



188 Elements of Political Economy. 



From this latter principle result the maxims of prac- 
tical uprightness which are accepted by all honest 
tradesmen ; it is always a duty to " give good money's 
worth," and to refrain from indulgence in deceit as to 
the quality of goods. 

§ 4. Usefulness of Fairs and Exchanges. 

Since price is the result of the relation established 
between the demand and the supply, the best way of 
fixing prices is to put all those who respectively 
supply and demand into communication. This is 
the function of fairs and exchanges. Individually I 
have no means of knowing how much I can obtain 
for the sack of barley I have just harvested ; hence 
isolated sales are accompanied by endless argument. 
When once, however, all who wish to sell their corn 
and all who wish to buy it, meet in one place ; out 
of their competition will immediately result a cur- 
rent price, and enormous transactions will then be 
easily effected in a few minutes. 

Exchanges and fairs are thus institutions which 
have as their aim and result the better application 
of the law of demand and supply. 



Distribution and Circulation, 189 



CHAPTER III. 

MONEY. 

§ I. Nature and Function of Money. 

Money is the substance or substances which 
custom or the law causes to be employed as the 
means of payment, the instrument of exchange, and 
the common measure of values. 

The jurisconsult Paulus has shown us how the 
difficulty of bartering wares against wares caused 
the employment in exchanges of an intermediary as 
a means of purchase and payment. Money is thus 
the agent of circulation and the vehicle of exchange. 
It causes the property in an object to pass from one 
person to another, in the same way as a cart transports 
an object from one place to another. 

As an American economist, Dana Horton (Mooiey 
and Law, p. 14) has noted, from the first origin of 
barbarous societies, law or custom established tributes, 
fines, compositions, and forced gifts, and determined 
by means of what objects they should be paid. 
Money is thus a legal means of payment. 

Money is at the same time the universal equiva- 
lent. When I sell goods for twenty shillings, the 
sovereign I receive is the equivalent of the goods I 
deliver, and by means of the 'sovereign of money I 



190 Elements of Political Economy, 

can, in my turn, obtain an equal value in com- 
modities. *'A piece of gold," says Adam Smith, 
" may be considered as an agreement for a certain 
quantity of goods payable by the tradesmen of the 
neighbourhood." 

Lastly, money is a common measure or standard 
of values. It is difficult to compare the relative 
value of objects directly — to fix, for instance, the 
amount of corn which a sheep is worth. But the 
comparative valuation becomes easy by the employ- 
ment in money of a common valuer. In the same 
way the length of objects is compared by means of 
the foot, the standard of long measure, and their 
heaviness by means of the pound, the standard of 
weight. Only the substance by means of which the 
comparative value of different articles of commerce 
is measured being itself merchandise delivered in 
exchange, its value varies like that of all goods. 
There is not, therefore, a fixed standard of values in 
the same way as there is of length and weight. 
What is desirable is to adopt one as fixed as possible. 

Money, by its very constant and widely-admitted 
value, permits the accumulation of wealth and its 
transference from one country and generation to 
another. It is thus a means of conservation and 
transmission of wealth in time and space. 

It is thanks to money that the division of labour 
and interdependence of the different trades and 
functions have been established. Money is thus the 
bond of human society. 



Distribution and Circulation. 191 



§ 2. Different Kinds of Money. 

Objects of every sort have been employed as 
money : in Siberia, furs ; in Africa, cubes of salt, 
tickets of blue cotton, and cowrie-sbells ; iron at 
Sparta; and, in former times, almost universally, 
heads of cattle. 

In the Big-Veda, in the Zend-Avesta, and in 
Homer, objects are valued at so many head of cattle. 
The arms of Diomede are worth nine oxen, and those 
of Glaucos one hundred (Iliad, vi. 234). The tripod 
given as a prize to the wrestlers in the twenty-third 
book of the Iliad is valued at a dozen oxen, and a 
slave, a quick workwoman, at four (Gladstone, 
Juventus Mundi, p. 534). ' The tribute which the 
Frank conquerors imposed on the Saxons was 
reckoned in oxen. Our word " pecuniary " (pecunia) 
comes from pecus, ''cattle," as does the legal term 
peciUium} The English word "fee" {S^ixon, feoJi = 
cattle) signifies " payment ; " the Scandinavian fa, 
"wealth," is identical with it. The Greek word 
KTTJ/jua signifies both " property " and a " flock ; " 
the Gothic skatts, " treasure " and " flock ; " schatz in 
German, " treasure ; " Sket in Frisian, " cattle." In 
Hebrew, Jcassaph means both " sheep " and " money ; " 
gamal, ''camel" and "payment;" mikneli, from the 

^ *' Is it not strange," says the commentator Festus, " tliat these 
commonly used words are derived from cattle ? Among the ancients 
it was of cattle that wealth and patrimonies chiefly consisted, so 
that we still speak oi pecunia, peciclium." 



192 Elements of Political Economy. 

root hana^ '* to create," a " flock and an acquisition," 
or " price." The Sanskrit rupya, the rupee of Indian 
coinage, is derived from rupa, " cattle." 

Metal money was at first employed as represent- 
ing money in cattle, for a passage in the Agamemnon 
of ^schylus seems to show that the ancient Greek 
pieces of money used to bear the mark of an ox, and 
the same was the case with the Roman as. 

When, with the progress of civilisation, exchanges 
had become more frequent, moneys were made ex- 
clusively of gold or silver. The simultaneous and 
universal employment of these two metals is due to 
their possessing, in a greater degree than any other 
substance, the qualities which a good money ought to 
unite. These qualities are as follow : — 

(1) Gold and silver do not in the least deteriorate 
with keeping. Minted, melted down, and re-minted, 
the gold gathered by the Greeks and Romans, in f 
part, still circulates among us. 

(2) The production of the precious metals is 
restrained by the scarcity of the ores. As a result 
they have great value in proportion to their weight, 
and this facilitates their handling, transport, and 
hoarding. 

(3) Augmented by annual production, diminished 
by accidental losses and wear and tear, the sum of 
the precious metals throughout the world, of which 
the value in money and ornaments is valued at about 
2,000,000,000/., increases slowly, and in nearly the 
same proportion as the increase of the need for money 



Distribution and Circulation. 193 

which arises from the development of population 
and of the total amount of the exchanges in the 
world. The demand and supply being thus nearly 
at an equilibrium, the value of gold and silver is 
very stable. 

(4) This immense stock of the precious metals 
lessens the variations in value which might result 
from the variations in the annual supply ; just as the 
level of a great lake is little affected by any changes 
in the discharge of the rivers which flow into it. 

(5) The precious metals are sought after and 
accepted everywhere, an indispensable condition for 
an object to be a general medium of exchange. They 
are received in every civilised country, and can thus 
serve as a means of universal payment. 

(6) They are easily divisible, and each part has a 
value proportionate to its weight. 

(7) They receive and preserve unaltered the im- 
print which makes known their origin and nominal 
value, and thus also their weight in pure metal. 

(8) They are easily recognisable : gold by its 
weight, silver by its sound. 

Of all these qualities of money the most essential 
is that of stability of value, inasmuch as a change 
in its value affects all contracts. 

§ 3. Value of Money. 
The value of money is measured by the quantity 
of objects it procures, that is to say, by its power 
of purchase. 

o 



194 Elements of Political Economy. , 

In the Middle Ages three bushels of corn could be 
bought for the pure silver contained in five of our 
shillings. Nowadays only a fourth as much could 
be obtained for the money. Silver, therefore, is 
worth only the fourth of what it was before the 
discovery of America. 

The value of the precious metals has diminished 
to this extent, despite the enormous increase in their 
employment, because their sum total and annual pro- 
duction have been considerably augmented. The 
sum total of gold and silver existing in Europe in 
the year 1500 is estimated at 80,000,000/., and the 
annual production at about 1,000,000Z. The pre- 
sent sum total in the whole world must now be 
over 2,000,000,000/., and the annual production 
about 36,000,000/. 

The value of money, like that of an}'" other object, 
depends on the relation between the supply and 
demand. The supply is the result of the quantity 
of money in circulation and the rapidity with which 
it circulates. If every shilling effects three pur- 
chases in a day, to accomplish the same number of 
exchanges three times fewer shillings will be needed 
than if each shilling only changed hands once. The 
supply and usefulness of the same amount of money 
are thus trebled. The demand for money is the 
result of the number of changes which have to be 
effected by means of cash. If the supply of money 
increases beyond the demand, its value decreases 
and prices rise. If the demand, i.e. the number of 



Distribution and Circulation. 195 

exchanges requiring payment in cash, increases 
beyond the amount of money in circulation, the 
value of money rises and prices fall. Lastly, if the 
quantity of money and number of exchanges increase 
equally, but at the same time means are found for 
effecting certain transactions without having recourse 
to cash, the employment of this is diminished, its 
supply increases, and prices rise. 

Gold and silver ornaments affect prices as creating 
a demand for money, not as supplying it ; for cash 
is needed in buying and selling these ornaments. 
The precious metals, again, in the form of ingots, 
only affect prices when they are represented by bills 
which fulfil the functions of money. Lastly, the 
cost of production of the precious metals only affects 
their "Value in proportion as it contributes to modify 
their quantity and in consequence, the supply. 

§ 4. Is the Abundance of Money an Advantage ? 

It is no advantage for mankind in general, or for 
an isolated country, to possess much money ; as many 
exchanges can be effected with little money as witti 
much. Prices diminish in proportion to the falliog 
off in the quantity of cash, and the rarer and more 
valuable the unit of money becomes the more ex- 
changes will it effect. If mankind possessed twice 
as much money as at present, it would be none the 
richer. It would have no greater number of com- 
modities or means of enjoyment. Every one's situ- 
ation would remain as it was before. Everything 

o 2 



196 Elements of Political Economy. 

else would.be the same; but prices would be doubled. 
Two shillings would be paid where one was paid 
before, and the money value of all goods would be 
twice as high — a change advantageous to nobody. 

An alteration, however, in the value of money, 
while in course of accomplishment, brings great 
confusion into all legal and economic relations, 
inasmuch as all debts and contracts are based on the 
prices which are clianging. The farmer who owes 
the state twenty shillings for taxes and the holder 
of a mortgage a like sum for interest, when the 
quarter of wheat sells for forty shillings, pays these 
two debts with the price of a single quarter. If 
money, and, consequently, prices diminish by one- 
half, to pay his debts he will have to surrender two 
quarters of his wheat instead of one. 

A decrease in the stock of money, whether absolute 
or relative, by lowering prices, has as its immediate 
consequence the restriction both of exchanges and 
production. Its final result is a heavy burden upon 
debtors. 

An increase in the amount of money, by raising 
prices, stimulates exchanges and production and 
relieves debtors. Hence the discovery of America 
by Christopher Columbus, and of the gold fields of 
California in 1848, may be said with truth to have 
saved many a bankruptcy. 

It is desirable that the value of money should 
remain as stable as possible, and this will be the case 
so long as its quantity increases in the same pro- 



Distribution and Circulation. 197 



portion as the number of exchanges for which cash 
is required. 

§ 5. Monetary Systems. 

In primitive times the precious metals were used 
as a means of exchange by being weighed, anc^ this 
is still the case in China and many other countries. 
With the Romans the As was originally the unit 
both of weight and of money. In England the 
pound is the monetary unit and the unit of 
weight. The French monetary system is derived 
from that of Charlemagne, in which the unit was 
the livre or pound of silver. In order to facilitate 
the use of gold and silver the state then struck pieces 
of them on which were specified their weight, the 
amount of pure metal they contained, their name, 
and, consequently, their legal value or power of 
payment. Thus, in order to pay a sum of money, 
it is no longer necessary to assay and weigh the 
metal, but only to count over a certain number 
of coins. 

To make the pieces of gold and silver hard, and 
thus less liable to wear, a certain proportion of 
copper is added to the pure metal ; this is "called the 
alloy. The proportion bttween the pure metal and 
the alloy is the standard which, in the English 
sovereign, is eleven parts of pure metal to one of 
alloy. A coin is said to be good money when it is 
of the legal standard. 

The unit of money is the coin of gold or silver 



198 Elements of Political Economy. 

of whicli the other coins are the multiples or 
measures. In England this is the sovereign ; in 
France, the franc ; in Germany, the mark ; in Hol- 
land, the florin ; and in "the United States, the 
dollar. Among coins there are some which have 
a legal currency for all payments without limit; 
others, of an inferior quality, have only legal cur- 
rency for small payments ; while, for the smallest 
payments of all, " token money " is issued, generally 
made of bronze or nickel. In England " coppers " 
may be tendered up to the value of a shilling, and 
silver to that of 2/. 

The sum of the laws and regulations concerning 
money constitutes the monetary system. 

Formerly all sovereign powers — monarchs, cities, 
bishops, and lords — reserved to themselves the right 
of coining money, because by issuing it at a nominal 
value greater than that of the metal it contained 
they received the difference of these two values, 
called seigneurage, as their profit, and made it a 
source of revenue. At different periods they abused 
their right of coinage to diminish the value of the 
currency, either by lessening the amount of pure 
metal contained in the coins, or by increasing their 
legal value. If, by adding more alloy, two coins are 
struck from the pure metal which formerly made 
one, or if it be proclaimed that a coin be received 
at double its former value, all payments are halved. 
This was the way that bankrupt states formerly made 
composition. Thus, a French king, Philippe le 



Distribution and Circulation. 199 

Bel, nicknamed the Coiner, because lie made great 
use of false coining to diminish his debts, is placed 
by Dante in Hell, — 

La si vedra il dnol che sopra Senna 
Induce, falseggiando la moneta 
Quel che morra di colpo di cotenna. 

(Parad. xix. 118—120.) 

" There will be seen the misery caused on the 
banks of Seine through the falsifying of money by 
him who is to die from the blow of a wild boar." 

Plutarch relates that for the relief of debtors Solon 
decreed that the mina should in future be worth 
a hundred drachmas instead of seventy-three, and 
adds : " In this way, by paying apparently the full 
value, though really less, those who owed large sums 
gained considerably, without causing any loss to 
their creditors." He here expresses the error which 
has inspired all the issues of " depreciated " and 
paper money. No one seems to lose because pay- 
ments are made just as well with coins reduced in 
value as with the unreduced. What is^ forgotten is 
that prices rise in proportion as the unit of money 
loses its value. 

The best instance of this reduction in value, owing 
to the successive " diminutions " decreed by different 
sovereigns, is afforded by the French coinage in 
which the livre which, as issued by Charlemagne, was 
a pound's weight of silver and worth about fifty two 
shillings, by the end of the eighteenth century had 
a value of no more than ninepence halfpenny. In 



200 Elements of Political Economy. 

England the £ has lost not quite two-thirds of its 
primitive value. 

In order thoroughly to understand historical pas- 
sages where sums of money and prices are concerned, 
it is necessary to know, firstly, what quantity of gold 
and silver these sums represented in the period in 
question ; and, secondly, what quantity of goods 
could be obtained for a certain weight of the precious 
metal. Thus in Greece, in the time of Solon, the 
drachma was worth something over ninepence, and 
was the price of a medimnus, or about twelve gallons, 
of wheat. In Rome the Papirian law Be muUarum 
cestimatione (B.C. 480), which converted the old fines 
of cattle into sums of money, fixed the value of a 
sheep at ten asses, and that of a bullock at one 
hundred. As the as lihralis, composed of an alloy* 
of copper, tin, and lead, was worth about fivepence 
farthing, the price of a sheep w^as thus about four 
shillings and sixpence, and that of a bullock about 
forty-four shillings. 

At the present time, in civilised countries, the 
coining of standard money is free. Any one has the 
right to take an unlimited amount of ore to the 
mint, and to receive in exchange an equal weight of 
current coin, with a deduction for the expenses of 
fabrication or coining, and in England without any 
deduction at all. It is thus private persons who 
cause money to be coined, but in conformance with 
a legal tariff. ' According to this tariff, 3^. lis. lO^d. 
IS paid in England for each ounce of gold of a 



Distribution and Circulation. 201 

fineness of eleven-twelfths. In France and in the 
Latin Union where, however, free coinage is at present 
suspended, 3,100 francs are given for a kilogramme 
of gold of a fineness of nineteenths, and 200 francs 
for a kilogramme of silver of the same standard. 

The right of coining the inferior money the state 
reserves to itself for two reasons : because its 
intrinsic value is less than its nominal, and because, 
the legal currency being limited, only a limited 
quantity is required. The free coinage of money in 
the two metals was introduced into England in 
1666, and in France by the " loi du 7 germinal 
an xi." (1803). 

The monetary system flourishing in the countries 
which in 1863 formed the Latin Monetary Union 
T^France, Italy, Switzerland, and Belgium) admits as 
standard money all gold coins and five-franc pieces. 
Other silver coins are of an inferior standard, of a 
fineness of only 835 parts in 1,000. These have 
only legal currency in each payment up to the 
amount of fifty francs, and the associated states 
cannot issue more than six francs for each 
inhabitant. 

Token money in France and Italy is made of 
bronze, in Switzerland and Belgium of nickel. It 
serves for very small payments, and no more than 
five francs of it need be accepted. In England 
copper money is only current to the amount of a 
shilling. 

An excellent provision in the Latin Union is a 



202 Elements of Political Economy, 



stipulation by which inferior coins and token money 
can be changed at the public banks for standard 
coins, when offered for a sum fixed by law. In this 
way the amount of small money can never become too 
great, since any unnecessary surplus can be converted 
into standard money. 

§ 6. Monometallism and Bimetallism. 

The monetary system of the Latin Union is called 
the " double-standard or bimetallic system," because 
it permits, in principle, the free and unlimited 
coinage both of gold and silver pieces, to each of which 
it gives legal currency, i.e., the right to be accepted in 
all payments, every debt being presumed in law to 
be payable in coins having a legal currency. 

The monometallic system only accords free coinage 
and unlimited legal currency to pieces of one metal, 
either gold, as in England, or silver, as in Austria. 
This system seems the simpler of the two, and fixes 
more exactly the relations of value between the 
different pieces of standard money, since these are 
all made of the same metal. The relation of value, 
however, between money and the goods of which 
it has to effect the exchange is more variable with 
a monometallic system than with a bimetallic. 
Just as a compensated pendulum, with its bars 
made of two metals of unequal expansiveness, is 
less liable to variation because their inequalities 
balance ; or just as a river with two tributaries flows 
more regularly than it would with only one, so a 



Distribution and Circulation. 203 



monetary system, fed by the simultaneous influx 
of both precious metals, is rendered more stable, 
because the total mass of standard money is greater, 
and because a falling off in the production of one 
of the two metals may be compensated by an 
increase in the production of the other. 

§ 7. The Laws of Gresham and Newton. 

A great drawback in the bimetallic system is 
expressed in what is called Gresham's law. Sir 
Thomas Gresham, one of the councillors of Queen 
Elizabeth, showed in 1558 that the money which 
has the less value always ousts that which has the 
greater from circulation, this last being exported. 
Aristophanes {Frogs, 1. 718) has recorded the same 
observation: "In our state," he says, ''the bad 
citizens are preferred to the good, just as bad money 
circulates while the good is hoarded." 

In 1717 Newton first indicated the means of 
obviating the vexatious effect of Gresham's law, by 
establishing the relation of value between gold and 
silver the same in all countries ; pointing out that, if 
this were done, there would no longer be any motive 
for exporting one of the two metals in preference to 
the other. The economic law thus formulated by the 
great discoverer of gravitation, should serve as a 
basis for a monetary union between all civilised 
states, which should draw closer the ties and relations 
between the associated nations. 

Till quite modern times silver has always been 



204 Elements of Political Economy. 

employed as the chief kind of money. In French 
the word argent is used as a synonym for money, and 
siller in Scotland had long a similar meaning. Silver 
is in fact the better metal for monetary use, since its 
value is more stable than that of gold, and this is the 
essential quality for the legal medium of payments, 
and the common measure of values. The value of 
silver is more stable than that of gold because it is 
exclusively obtained from the working of mines. The 
production of gold, three-fourths of which is obtained 
from auriferous sands, increases and diminishes, as 
history shows, in a very short time. If gold were 
everywhere adopted as the sole standard metal, prices 
would be subject to numerous and abrupt fluctuations, 
and this is a great evil. 

§ 8. The Maintenance of Monetary Systems. 

To maintain a monetary system in its integrity 
the following legislative measures are indispensable. 

(1) The making and issuing false money, or 
counterfeiting or clipping the legal money, must be 
prohibited and punished. 

(2) A minimum weight must be fixed which coins 
must possess or lose their legal currency and be liable 
to be refused in payment. 

(3) At the expense either of the state or the last 
owner, all these coins of less than the minimum legal 
weight must be withdrawn from circulation and 
reminted. Since the coins have been worn by the 



Distribution and Circulation. 205 

use of the public at large, and not of the last owner, 
it is juster for the expense of reminting to be borne 
by the state. 



CHAPTER IV. 

CREDIT. 

§ I. What Credit is. 

Credit is the act of confidence by which the 
holders of a sum of money or a quantity of goods 
delivers them to another person on his promise of 
reimbursement or payment. The word credit comes 
from the Latin credere, " to believe." Whoever 
delivers to another person either money or goods on 
the condition that after a certain time they shall 
restore the sum lent, or pay the price agreed, does so 
because he believes that this promise will be fulfilled. 
The person who credits this promise and has the 
right to demand payment is the creditor. The person 
who promises and is under an obligation to pay is 
the debtor. The sum which has to be paid is called a 
debt, and is said to be placed to the credit of the first 
and the debit of the second. The time which has to 
run till the moment of payment is the term. 

Promise and confidence in a promise, these, then, 
are the elements of credit. That which inspires 
confidence is solvency, intelligence, the spirit of 
order and uprightness. Laws which develop these 



206 Elements of Political Economy. 

qualities and insure the rigorous execution of 
engagements have as their result the expansion and 
increase of credit — a good instance of the way in 
which virtues and just laws favour the production 
of wealth. 

A debt when acknowledged in writing gives rise to 
different kinds of vouchers, bank notes, bills payable 
to order, letters of exchange, cheques, bills of sale, 
municipal and joint stock debentures, and state loans. 

" Personal " credit has as its basis either the in- 
dividual qualities or the fortune, real or supposed, 
of the debtor. " Real " credit depends on the goods 
(res) which he pledges or gives as security. "Real" 
pledges are more trustworthy than personal security. 
Plus est cautionis in re qtcam in persona is the 
expression of that " stereotype of good sense " the 
Roman laws. 

§ 2. The Advantages and Effects of Credit. 

Credit fosters the productivity of labour and 
enables it to increase wealth ; it does not however 
increase wealth itself. In other words, it augments 
the activity of capital, not its quantity. All credit is 
summed up in a promise or an order to pay, i.e. in a 
signature ; and capital cannot be created by a stroke 
of the pen. 

Credit seems to multiply capital because side by 
side with the thing owed appears the promise which 
confers a right to it. In reality, however, these are 
not two separate things ; one is only the shadow of 



Distribution and Circulation. 207 



the other. Bum every I O U in the world, and 
nothing real will have ceased to exist. Only the 
legal relations have been changed, since the creditors 
lose exactly what the debtors gain. When a house 
is reflected in the water, it may be said that there 
are two houses. The water ruffles, and the reflection 
vanishes; but the real house continues to exist. 
When I buy a promise to pay a hundred pounds, 
what I acquire is the future possession of this sum 
with the interest attached to it. Wealth, and a 
title to possess this wealth, cannot be reckoned as 
two things. 

The following are some of the useful effects of 
credit. 

(1) Credit brings to labour the capital necessary 
for production. 

A man with strong arms takes possession of a 
piece of fertile land : he lacks, however, the tools to 
cultivate it and provisions to maintain him until 
harvest-time ; for lack of these he dies of huno-er 
and the land remains unproductive. Instead of this, 
suppose I lend him the means of procuring tools and 
subsistence : he sets to work, and at the end of the 
jear repays me my advance ; henceforth he can live 
on the fruits of his labour. This is an instance of 
how credit favours the increase of wealth by coming 
to the aid of labour. 

(2) Credit puts savings in motion and thus 
prevents capital lying unemployed. 

In the East no one dares to lend his savings for 



208 Elements of Political Economy. 

fear of losing tliem. He prefers to convert them into 
jewels with which he ornaments his chibouque, his 
yataghan, or the harness of his horse. Perhaps, more 
prudent still, he buries them in order that they may 
escape the greed of the government. Thus the wealth 
which his savings creates in no way furthers production. 
Credit has no existence. On the other hand, in 
Scotland, landlords, farmers, manufacturers, artisans, 
all deposit their disposable funds in banks, by which 
they are immediately advanced to producers. In 
this way no article of capital is left unemployed. 
Founded on honesty and the love of work, credit 
reigns and accomplishes marvels. 

(3) Credit brings capital into the hands of those 
who will make the best use of it. 

New capital is for the most part created by persons 
unoccupied in any industry and thus unable to 
employ it remuneratively. The means of drawing an 
income from it is to lend it, either directly, or through 
the medium of a banker, to those who will pay most 
for the use of it, i.e. to those who will employ 
it most productively. Credit is thus constantly 
transferring capital to the places and hands in which 
it brings in the most. As a consequence it affords an 
incentive to saving by assuring to thrift a reward, not 
only immediate, but as high as can be paid. 

(4) Credit allows of the immediate execution of 
groat works, or of the meeting of extraordinary 
needs, such as those which arise in time of war, by 
discounting the revenues or produce expected in the 



Distribution and Circulation. 209 



future. Even in this case, however, it must not 
be supposed that credit creates anything; it only 
determines the disposition of capital already in 
existence. 

There is no such thing, as some assert, as 
anticipating the future, or releasing capital once 
invested. We can only use what is actually in 
existence at the given moment. The expressions 
quoted are metaphorical ; and in political economy, 
as elsewhere, metaphors are dangerous weapons to 
handle. 

(5) Credit creates economical methods of pay- 
ment. 

In this way it allows exchanges to be made with a 
smaller quantity of metallic money. Gold and silver 
are set free, and can be devoted to industry, or exported 
in exchange for objects useful either for consumption or 
production. As Adam Smith has said, credit opens 
for the exchange of productions paths through the 
air, and thus the ordinary roads can be put under 
cultivation, and increase the production of articles of 
food. This advantage, however, is, in part, more 
apparent than real. The gold and silver remain in 
the country, or if we take the world at large as our 
field of observation, the addition rf bills to the 
means of exchange afforded by metallic money, tends 
towards a rise of prices. On the other hand, it is no 
less certain that the greater facility of exchange will 
give a stimulus to industry and commerce, which will 
then, in their turn, require more of the instruments 

P 



210 Elements of PoUtieal Economy. 



of exchano-e. When this is the case there will be no 

CD 

depreciation of money, nor rise of prices. 

The way in which credit performs the functions of 
money is as follows : A solvent person promises to 
pay 50Z. ; this promise, in which implicit confidence 
is placed, is received in payment as readily as fifty 
sovereigns, and, as it passes from hand to hand, 
influences all transactions in the same way as they 
would be influenced by these sovereigns to which it 
gives a title, and represents. Side by side with the 
circulation resting on coin, there is thus established 
a circulation resting on confidence, the instruments 
of which possess the following advantages : 

(1) They are less cumbrous than the precious 
metals. 

(2) They enable large sums to be counted more 
easily. 

(3) They are not exposed to the wear and tear, 
which gradually lessens the weight of coins. 

(4) They can be more easily sent to a distance. 

(5) Some of them can be so constructed that 
their unlawful possessor can obtain no payment. 

All the instruments of credit rest on a basis of 
metal money, since they confer a right to receive a 
sum in coin. But, in so far as they circulate, they 
fulfil the functions of money. 

§ 3. The Drawbacks of Credit. 

The mother says to her son, " Buy nothing except 
for money ; credit is ruinous." The father tells him. 



Distribution and Circulation. 211 

" Credit is the soul of industry ; it is the refusal of it 
that ruins." Both are right : the mother who speaks 
of the poisonous credit that ministers to unproductive 
consumption, the father who alludes to the beneficent 
credit that forwards production. Unfortunately the 
borrowers on the largest scale, i.e. Governments, 
have recourse more often to the first kind of credit 
than to the second, and devour capital unproduc- 
tively in war and the preparations for war. 

Credit, also, by permitting purchases from funds 
which people hope to, not only which they do, 
possess, favours hazardous speculations and the over 
excitement of industry and commerce. 

§ 4. The Instruments of Credit. 

All instruments of credit are alike in consisting of 
a voucher which affirms the rights of the creditors 
with respect to a debtor. 

(1) In the acknowledgement, A acknowledges 
himself indebted to B in the sum of 50^. and 
promises to pay the same. 

(2) In the hill ][)ayable to hearer at sight, A 
promises to pay 50/. to any person who shall present 
the bill, and at the moment of presentation ; this is 
the bank-note. The bank-note when accepted in 
payment extinguishes the debt the same as money 
does, and thus, to the extent that it is received, 
performs the function of the latter. 

(3) In the hill to order, A has purchased goods to 

p 2 



212 Elements of Political Economy. 

the value of 50/. from B, and, instead of paying 
ready money, gives him a bill in these terms : — 

/ promise to pay to B, or his order ^ the sum of 
50/., payable July \st, 1882. 

This bill is transferable, so that if B owes 50/. to 
C, he can pay it, with C's consent, by passing him on 
the bill signed by A and endorsing it, i.e. writing on 
the Jback, *' Pay to C or to his order." Each time 
that a bill thus endorsed passes from one person to 
another, it effects a provisional payment, which does 
not become final unless the bill is paid on its expiry. 
On the day of expiry, the last holder has to present 
the bill to the original debtor who created it. If the 
debtor fail to pay, his refusal must be established, at 
the latest the second day after the expiry, by an act 
called a protest. If this protest is duly made, the 
successive endorsers of the bill are severally bound to 
ma.ke it good, until the first creditor, B, (the drawer^ 
is reached, on whom falls the loss resulting from A's 
inability to pay. 

(4) The hill of exchange is created and afterwards 
transmitted by endorsement in exactly the same way 
as the bill to order, from which it differs only in 
its form. Instead of the debtor who promises to 
pay, it is now the creditor who gives the debtor an 
order to pay, thus : 

London, July 1st, 1883. 

At three months pay to the order of C the sum 
of 50/. 

To M B, Brussels Signed A 

{The debtor). {The creditor). 



Distribution and Circulation. 213 

The great advantage of the bill of exchange is 
that, when draiun from one place on another, it 
settles the reciprocal debts of these places, and 
dispenses with the transmission of coin. For 
example living in London I have to pay 50/. to 
M. Pierre at Paris. Mr. Smith, on the other hand, 
has 50Z. to receive from a M. Jacques at Paris, and 
draws a bill on him for this sum. I buy this bill of 
Smith, who is thus paid, and send it to my creditor, 
M. Pierre. M. Pierre presents the bill to M. Jacques, 
and when the latter has paid it, M. Pierre's claim on 
me is also satisfied. Both debts have thus been 
paid, and no money has been sent from one city to 
another. Exchanges between country and country 
are regulated in the same manner, almost entirely 
without the transmission of coin. English mer- 
chants pay for their purchases in France by trans- 
mitting bills drawn by Englishmen on Frenchmen. 

(5) A cheqite is an order to pay at sight a certain 
sum to the credit of the bearer. When several 
persons have the same banker, payments from one 
to another can be made by cheques and transfers of 
account in the simplest possible manner. Thus if I 
owe Smith 50/., I send him a cheque on our common 
banker, with whom we both have a current account, 
The banker subtracts 50/. from my balance, i.e. the 
amount due to me, and carries it to Smith's. This 
transfer, made in two lines of writing, suffices to 
effect the payment. The Bank of France effects 
these settlements of its clients' reciprocal debts to 



214 Elements of Political Economy. 

the amount of more than 1,600,000,000Z. In 
London and New York clerks from the principal 
banks meet every day in the '' Clearing House/' and 
there balance the cheques they hold against each 
other. These balancings amount in the course of 
the year, in London to about 5,000,000,000^., and 
in New York to rather over a thousand millions 
more. 

(6) Warrants and certificates of bonding. Warrants 
certifying that goods have been bonded in a public 
warehouse or dock, can be used for giving a creditor 
security, but not as a means of payment. On the 
other hand certificates of the warehousing of coin, or 
even of gold and silver ingots, serve perfectly as a 
means of paying the sum which they represent. 

(7) Mortgage hands are bonds representing a 
fraction of the mortgages possessed by the bank 
which issues them on the property of the debtor. 
They confer a right to interest and repayment in an 
order determined by lot. The raiser of the mortgage 
pays interest, and an annual sum which is devoted 
to the extinction of the debt by a certain time. 

(8) Debentures are bonds representing debts con- 
tracted by industrial companies, chiefly railways. 
They give a right to interest, paid yearly or half 
yearly, and to repayment, often with a premium, in 
an order determined by lot. 

(9) Municipal debentures represent the debts of 
various cities. Frequently they are in similar terms 
to the bonds just mentioned. 



Distribution and Circulation. 215 

(10) Government stocks represent the debts owed 
by the various Governments as a result of their 
loans. In general, Governments engage to pay a 
certain interest, not to refund the capital at any 
fixed date, whence the term, ^' loerpetual or con- 
solidated deht" States which have the means 
gradually refund their debts, by the operation of 
a sinking fund, buying bonds on the Stock Exchange, 
and destroying them. 

Bonds of the description of numbers 7, 8, 9, and 
10, representing loans for long terms, cannot serve 
in the place of money. The other bonds do so to a 
certain extent, but the only perfect substitute for coin 
is the bank-note with its power of effecting a final 
payment. 

Money in the shape of bills was employed at 
Carthage. In a dialogue entitled " Eryxias ^schine," 
Socraticus, in a discussion on the nature of wealth, 
relates how " The Carthaginians provide themselves 
with money in the following manner. In a small 
piece of leather there is sewn an object of the size of 
a stater (a Greek coin), but only those who have made 
the seam know what this object is. A mark is then 
stamped upon the leather, and henceforth it is used 
as money. Those persons are considered the wealthiest 
who have the most of these objects, though among us 
they would be of no more value than the pebbles of 
our mountains." This quotation explains the whole 
mystery of the circulation of credit. Objects of a 
limited quantity and receivable in all payments at a 



216 Elements of Political Economy, 

value fixed by law, discharge to perfection the function 
of an equivalent sum of money, for this function con- 
sists in procuring the holder everything he desires up 
to the nominal value of these objects. Metal money 
has only this additional advantage of possessing also 
intrinsically as merchandise the conventional value 
attributed to it by law. 

§ 5. Banks. 

Banks are institutions which facilitate the oper- 
ations of credit and the circulation of its instru- 
ments. Bankers and joint-stock banks must possess 
a capital of their own; but they work chiefly by 
receiving the capital of one set of persons to lend 
it in different manners to another. Their principal 
operations are as follow : — 

(1) The receipt of deposits. Banks receive on 
deposit capital of which its proprietors are unable to 
make use, and lend it to persons in a position to 
employ it profitably. To do this, bankers must know 
the solvency of their borrowers. The bank's profit 
consists in the difference between the interest which 
it pays its depositors and that paid by its borrowers. 

In countries where the employment of credit is 
well understood, every one who has daily to make pay- 
ments, makes a deposit at his bankers, and pays by 
means of cheques on these deposits. In England 
bank deposits exceed 820,000,000/., and in France 
80,000,000/. In this way reciprocal debts are 
balanced and settled without resort to coin. The 



Distribution and Circulation. 217 

manner in which this is effected is as follows : Let us 
suppose that in a village every one has an account 
open at the same banker's. The farmer will then pay 
his rent by causing the amount to be written off his 
balance and transferred to his landlord's. The land- 
lord in paying for the bread supplied to his house will 
transfer the price to the balance of the baker. The 
baker will pay the corn and flour dealer, and this 
latter the farmer who sells him his wheat, in the same 
manner. In this way products pass from hand to 
hand in the successive forms which labour gives them, 
from their first production till they are finally 
consumed. Property in the objects is transferred at 
the same time at each exchange, but without the 
employment of an equivalent in specie, as bills. The 
farmer's deposit or credit at the bank, by changing 
possessors, will have served to settle the successive 
transactions, apportioning to each the share he can 
claim in the value of the products. This simple 
example supplies the key to the marvellous machinery 
of credit as it is in operation in England and America. 

(2) The keeping open of current accoimts. The 
bank keeps an account open for each of its clients, 
with one column for the credit and another for the 
debit. All sums received are carried to the credit side, 
all sums paid on the client's account to the debit. 
Interest is due to the depositor or to the bank according 
to to whose advantage is the balance of credit when 
the debited are greater than those credited. 

(3) Discounting hills, i.e. promises to pay, hills to 



218 Elements of Political Economy. 

order, and hills of exchange. Any one who has sold 
goods and received in payment either a promise or a 
bill of exchange drawn on the debtor, may have 
occasion to convert these bills into ready money 
in order to discharge his own obligations for labour, 
rent, or the purchase of provisions, &c. If the 
banker puts trust in the solvency of the debtor and 
creditor, the latter of whom by, his endorsement, is 
also made responsible for the ultimate payment, he 
takes over the bill, and gives its value after deducting 
interest on the sum paid, calculated according to the 
term to run before the bill expires, i.e. before the day 
of payment, and also according to the current rate of 
interest. This transaction is called "discounting" 
and the rate of interest is called the " rate of discount." 
Discounting really amounts to the purchase of the 
credit represented by the bill. Discounting is the 
principal operation of credit. Every fluctuation of 
production and exchange depends on this, since - 
manufacturers and merchants ordinarily settle their 
purchases by means of bills. 

(4) Issue of hanh-notes. In the year 807 the 
Emperor of China, Hiang-Tsong, ordered that gold 
and silver money should be deposited in the imperial 
treasury, and in exchange for it gave certificates, 
which circulated as legal currency, and were com- 
pletely accepted as such by commerce. To these 
certificates was given the very appropriate name of 
fei-tsien, or " flying money." The Bank of Venice 
(founded in 1171), the Banks of Amsterdam (1609), 



Distribution and Circulation. 219 

of Hamburg (1629); and Rotterdam (1635), issued 
certificates of deposit representing, in round figures, 
the value in pure metal of the coin deposited in their 
safes. These bills, which gave a right to a fixed 
weight of gold or silver, were preferred, as a means 
of payment, to the current coinage, the value of which 
was often modified either by edict of the government 
or by wear and tear. Bank-notes were at a premium, 
and the use of them in payments was made a matter 
of stipulation. At the present time this form of 
credit-money is in general use in all civilised countries, 
and has even often been misused. 

As a means of payment, if not recognised by law, 
at least universally accepted, bank-notes payable at 
sight or to bearer, are used instead of bills of commerce, 
which only circulate among persons who know each 
other, and are of assured respoDsibility. These notes 
are also usually preferred to metal money, as lighter, 
and more convenient when large sums have to be 
counted. In France, when after 1848 the issue of 
notes was restricted to a maximum insufficient for 
the needs of exchange, a premium was paid to obtain 
them. 

The value of the bank-notes issued is covered by 
a fund in coin or ingots, and by discounted bills, 
which together constitute the " reserve." It is esti- 
mated that a note-issuing bank ought to have in 
cash one-third of its notes in circulation. A law 
passed in 1844, called the Bank Charter Act, subjects 
the Bank of England to a still more stringent rule. 



220 Elements of Political Economy. 

By this law, every issue of notes in excess of fourteen 
and a half millions sterling, must be covered by an 
equal sum in legal money or ingots, so that the 
instrument of exchange can only increase in the pro- 
portion which it would observe if it were exclusively 
metal. 

Prudence commands banks which issue notes to 
keep their reserve fund at a suitable level by raising 
the rate of discount when the precious metals are 
leaving the country. 

In times of great crises, Governments sometimes 
decree a ''forced currency." By this decree banks 
are authorised to refuse to make good their notes 
at sight, and all persons are obliged to receive these 
non-convertible notes in all payments at their nominal 
value. This extreme measure has as its object to 
enable banks sometimes to continue to lend their 
credit to commercial and industrial firms, which is a 
good thing ; sometimes to make advances to the 
State in the form of notes forced on the public, which 
is an evil, and one which becomes greater in pro- 
portion as the issue of these non-convertible notes 
is more considerable. 

When the amount of these non-convertible notes 
surpasses the needs of the circulation, like everything 
else that is in excess, they depreciate in value. This 
depreciation takes the form of a general rise of 
prices. It can be exactly measured by comparing 
the value of the unit of money in paper, and that of 
the same unit in metal. Thus the Russian silver 



Distribution and Circulation. 221 

rouble is worth about three shillings and fourpence, 
while the paper rouble, at present, is only worth two 
and twopence. So in England in 1810, to obtain a 
gold guinea, in gold, or an equivalent weight of the 
metal, paper money had to be given of the nominal 
value of a guinea and a quarter. 

Convertible notes are " money of paper," and this 
necessarily keeps on an equality with metal money, 
since the holder of a note, sooner than submit to a 
loss, will demand that it be redeemed. On the other 
hand, the non-convertible notes of a forced currency 
are "paper-money," and the depreciation of this is 
only limited in the same extent as is its issue in 
excess. The most memorable example of this 
depreciation is the case of the assignats. The French 
Republic had confiscated property of the clergy and 
emigrants to the value of over two hundred millions. 
To facilitate its sale, on the proposition of Mirabeau, 
the State issued notes called ''assignats," because 
they were " assigned " for the purchase of the property 
of the nation. Since the lands purchased were to be 
paid for with these notes, which were to be destroyed 
on their return from circulation, with the sale of the 
last of the acres the last of the notes should have 
been cancelled. 

The assignats remained at par to the end of 1792, 
though they had been issued to the amount of two thou- 
sand million livres, (80,000,000/.). To meet, however, 
the requirements of the war, they were created to the 
amountof forty-five thousandmillions (1,800,000,000/.), 



222 Elements of Political Economy. 

and their value diminished in proportion to the increase 
of their issue. During the summer of 1795, one 
hundred livres in assignats were hardly worth one in 
silver, and their value varied enormously from day to 
day. The price in assignats of a pair of boots was 
fifteen hundred Hvres. In July, 1796, their legal 
currency was suppressed. The important lesson 
afforded by these facts is that credit-money, even 
when guaranteed by real property, depreciates in 
value if it is issued in excess of the requirements of 
the circulation. 

§ 6. Free Creation of Note-issuing Banks. 

The issue of bank-notes should be permitted to all 
persons and companies accepting responsibility for 
their acts ; but it should be prohibited to companies 
with limited liability because these constitute an 
exception to the principles of the common law. 

The control of the currency has always, and rightly, 
been recognised as an attribute of the State. The 
quantity of money in circulation has an influence on 
all prices, and, as a consequence, on the financial 
situation and the legal relations of every individual. 
Bank-notes, however, are a money made of paper, 
acting on prices just like money made of metal. The 
history of the banks of the United States shows 
clearly the dangers of an unlimited power of issuing 
these notes. 

Progress has led us from local currency to national 
currency, and from national currency to international 



Distribution and Circulation. 223 

currency. The same progress must be made in the 
case of bank-notes. The unity of the means of 
exchange has the greatest advantages, and their 
diversity the greatest inconveniences. 



CHAPTER V. 

MONETARY, COMMERCIAL, AND INDUSTRIAL CRISES. 

§ I. Nature of Crises. 

Crises are the diseases of credit, for countries 
where credit is Httle used escape them. Sometimes 
they are as sharp as an inflammation, sometimes as 
slow and insidious as an anemic. They produce 
widespread disturbance in the money market, and 
consequently in production, and thus occasion heavy 
losses and numerous failures. Three varieties of 
crises may be distinguished, (1) monetary and com- 
mercial, (2) industrial, (3) speculative; and their 
phenomena demand as careful study as any in 
economy, since a knowledge of crises diminishes 
the risks of loss and increases the means of gain. 

§ 2. The Periodical recurrence of Commercial 
and Monetary Crises. 

For the last century, i.e. ever since the employment 
of credit became general in England, economic crises 
have occurred nearly every tenth year, the exact dates 
being 1763, 1783, 1793, 1803, 1825. 1838, 1847 



224! Elements of Political Economy. 

1857, 1864 to 1866, 1875 to 1879. It has been 
thought that a kind of natural law may be observed 
in this periodical character of this return. Mr. 
Jevons, who treats political economy mathematically, 
has even suggested that crises are determined by the 
spots in the sun. Their principal cause, he says, is 
the exportation of specie. Specie is exported to pay 
for the import of grain during years in which the 
harvest is bad. Bad harvests are the result of in- 
clement summers, and these are caused by the spots 
in the sun. This explanation is ingenious, but has 
the defect of being untrue to facts. That crises 
should recur periodically is not a natural law. The 
fact that they do so recur is explained by the re- 
currence of the circumstances by which they are 
produced ; and the science of finance can teach us 
how to exorcise them. 

§ 3. Characteristics of Crises. 

Crises mostly occur at the end of several consecutive 
years of prosperity, during which capital has been 
accumulating. This abundant supply of capital 
lowers the rate of interest. Cheap money stirs up 
the spirit of enterprise. Numerous companies are 
started, and the bonds which represent their capital 
are in great demand. The rise in prices soon brings 
in large profits to the bond-holders. Every one is 
anxious to buy, to gain a share in these profits ; and 
so the rise continues and stimulates the demand by 
the increasing bonus which it brings in. No one loses. 



Distribution and Circulation. 225 



Everything that is touched turns to gold. The 
prices of commodities also rise, for the people who 
have grown rich increase their consumption. The 
period is one of " expansion," based on the employ- 
ment of credit in all its forms. At last somethino- 
happens which absorbs specie, the basis of credit ; 
for example, an exceptional importation of grain in- 
duced by a poor harvest, or large investments in 
foreign securities. The bank which regulates the 
market raises the rate of discount. Credit contracts. 
Confidence disappears. Distrust spreads. A panic 
breaks out ; every one wishes to sell, and no more 
buyers can be found. Prices fall lower and lower. 
Credit is absolutely refused, and we have reached the 
period of " revulsion." Deprived of the power both 
of borrowing and selling, those who have payments 
to make are involved in failure. One bankruptcy 
follows on another. A crisis has come. 

This in its violence does not last long. The 
excessive fall in all prices once more attracts buyers, 
and money and credit return with them. To recover, 
however, from such disasters many years are needed, 
and these are called the period of "recovery." At 
the end of this the period of expansion recommences, 
to end in a fresh crisis, and so the circle begins again. 
This succession of events, one caused by another, 
sufficiently explains the cycle of nine or ten years. 

Since commercial and financial intercourse has 
become easier and infinitely more frequent, all 
civilised countries have been made, so to speak, into 

Q 



226 Elements of Political Economy. 

a single market. Nowadays, therefore, a crisis ori- 
ginating in one or two affects more or less all the 
others. Thus in 1857 the crisis began in the United 
States in the month of September. By October 13th 
it had reached its height ; discount had reached 50 
and 60 per cent., no one could make further payments. 
All the banks closed their shutters ; it was reckoned 
that there were 5,123 failures with a liability 
of £60,000,000. In November the crisis reached 
England, and raged there with unexampled violence. 
From England it was launched on Hamburg, and 
the Scandinavian markets, Copenhagen and Stock- 
holm. It then made itself successively felt in North 
Germany, Vienna, Egypt, the Indies, Java, and, 
completing its course round the world, Chili, 
Bueiios-Ayres, and Rio Janeiro. The financial 
cyclone, like the atmospheric, had travelled from 
west to east, everywhere scattering ruin on its road. 
These events prove clearly the important truth that, 
for evil as well as for good, the union of the human 
race is becoming ever more potently effective. 

Slow crises are the results of a scarcity of the 
instrument of exchange. That which took place 
from 1873 to 1879 in Europe and the United States 
presents a type of them. Prices remain low. Profits 
are little or nothing. Capital accumulates slowly. 
The spirit of enterprise is not stimulated even by the 
fall of interest. All economic life seems enfeebled. 



Distribution and Circulation. 227 



§ 4. Causes of Commercial and Monetary Crises. 

These crises arise from different causes — the 
opening of a new market, a low rate of interest 
inciting to excessive speculation — bad harvest neces- 
sitating exceptional importations of food, a sudden 
change in the lines of commerce, such as occurs at 
the end of a great war, as witness the years 1815 and 
1871. These different causes may be grouped in the 
following manner. 

(1) A very general use of bonds as a circulating 
agent. Bank notes, bills, cheques, deposits in banks, 
are all promises or orders to pay in specie, of which, 
however, there is not nearly enough for the payments 
that have to be made. Thus the immense super- 
structure of credit rests on a very narrow basis of cash. 
Nine-tenths of the business done in England and 
the United States, and three-fourths of that of the 
Continent, are regulated by means of credit. The 
mechanism brought to this perfection works admirably 
so long as it is supported by confidence, but as soon 
as credit diminishes all the agents of circulation which 
rest on trust contract also, and there is a fall of prices. 
If the contraction and consequent fall are sudden 
and great, then we have a crisis. 

(2) During the period of expansion a large 
number of debts for short terms are contracted, 
sometimes in the form of subscriptions to issues of 
shares and bonds not fully paid up, i.e. where the 
capital has to be paid in successive instalments ; 

Q 2 



228 Elements of Political Economy. 

sometimes in large purchases of bills and goods on 
credit in the hope of a rise in prices ; sometimes in 
numerous foreign investments prompted by the low 
rate of interest, &c. This enormous mass of debts 
based upon credit constitutes, so to say, the morbid 
element of the crisis. 

(3) The immediate cause of a crisis is always a 
decrease in the quantity of ready money induced 
sometimes by exportation, sometimes by the wants 
of the national commerce. This decrease contracts 
the resources of the banks which keep the machinery 
of credit in motion. With this cessation of the 
ordinary functions of the banks exchanges and 
payments fall off or cease altogether, and hence 
arise losses, ruin, bankruptcies, and, in one word, 
a crisis. 

§ 5. Means of preventing and remedying Crises. 

To ward off or cure a disease it is necessary to 
attack its causes. The nature of the causes indicates 
that of the remedies. 

(1) The amount of metal money should be kept 
sufficiently large to serve as an adequate basis to the 
credit employed. The best writers agree that 
England and the United States have failed to main- 
tain this proportion. France has suffered less from 
crises than these two countries because its circulation 
of specie is relatively greater. The losses occasioned 
by crises greatly exceed the saving effected on the 
reduced use of coin. 



Distribution and Circulation. 229 

(2) In periods of excessive expansion time en- 
gagements should be checked rather than multiplied. 
(3) The rate of discount should be raised in good 
time, either to moderate excessive expansion or to 
recall money that has left the country. A higher 
rate of discount, by lowering prices, brings back 
buyers and specie with them. 

§ 6. Industrial Crises. 

These crises are not general like the preceding 
ones, but attack sometimes one industry, sometimes 
another. Several causes produce them. 

(1) The closing of an important market, as in 1864, 
when all the southern ports of the United States 
were blockaded. 

(2) Competition from a fresh quarter, such as the 
agriculture of Western Europe is suffering at the 
present time from the supply of corn furnished by 
the United States at very low prices. 

(3) Excess of production. When an industry has 
yielded exceptional profits a large amount of capital 
is invested in it, and too many manufactories estab- 
lished. Production surpasses the needs of consump- 
tion. Prices fall, and the manufacturers not supplied 
with the best machinery are ruined. There is a 
crisis of ''over-production." 

§ 7. Speculative Crises or Crashes. 

Crises of this class have been called " crashes," 
because their mode of manifestation is by a sudden 



230 Elements of Political Economy. 

collapse. Any one who wishes to learn their nature 
and causes should read the history of the " system " 
of Law. Law was a Scotchman who arrived in 
France in 1715. By his knowledge of finance, and 
brilliant genius, he seduced the Regent, who placed 
all the power of the state at his disposal. So sup- 
ported, Law founded a bank on the model of the 
Bank of England, created commercial companies like 
those of Holland, obtained a monopoly of all the 
trade with Asia, Africa, and America, farmed the 
taxes, and repaid the national debt of fifteen hundred 
million francs. To effect these vast operations he 
issued 624,000 shares of 500 livres, which, increasing 
in price to 10,000 livres, represented a sum of 
6,240,000,000 livres, and 1,700,000 000 more in 
bank notes. He thus at one stroke created an 
object of speculation, and the means of pushing it 
to madness. The shares were fought for. Every one 
was anxious to obtain them at any price, for to touch 
them brought wealth. Their price rose incessantly, 
until on January 5th, 1720, it reached the insensate 
sum of 18,000 livres. Stockjobbers realised enor- 
mous fortunes in a few days ; all prices rose and 
every one was enriched. Soon the reaction set in ; 
shares declined. Law tried to stop the fall by buy- 
ing them in at 9,000 livres by means of an issue of 
bank notes. The discredit then extended to these ; 
the public would have no more paper of any kind, 
but demanded coin. Coin there was none to have, 
for it had all been hid. There was a general collapse ; 



Distribution and Circulation. 231 

and the mass of bonds and notes which at one time 
had represented ten thousand million livres, vanished 
with the confidence which had brought them into 
being. 

The characteristics of the "crash" may thus be 
very shortly explained. The infatuation of the 
public causes a rise of value. If this infatuation is 
general, the rise is considerable, maintains itself, and 
yields enormous profits. This attracts buyers, and 
the greater the number of buyers the greater the 
gains ; the greater the gains the more the buyers. 
The shower of gold falls on every one ; but with the 
slightest hesitation there begins a headlong fall, and 
everything collapses. The imposing edifice was but 
a fata morgana created by credit. When the mirage 
disappears, no real wealth has been destroyed, but 
enormous amounts have changed hands. Clever 
men are enriched and their dupes ruined. 



CHAPTER VI. 

FREE TRADE AND PROTECTION. 

§ I. Free Trade. 

A MERCHANT, on being asked by the French 
statesman, Colbert, what was the best way of favour- 
ing commerce, made answer : Zaissez /aire ; laissez 
jpasser, " Leave it alone ; " and this reply of his has 



232 Elements of Political Economy. 

become the watchword of the supporters of freedom 
of trade, or, as it is sometimes called, free exchange. 
What, in fact, can be more natural than to allow 
every one to buy and sell where he can do so most 
advantageously, whether in or out of his own 
country ? 

To raise a revenue a state is still justified in 
imposing custom dues on the importation of certain 
foreign goods, though the tax is a bad one ; but to 
establish these duties under the pretext of protecting 
national industries is an iniquitous measure, fatal to 
the general interest. By forcing consumers to buy 
from the protected manufacturers at higher prices 
than they would elsewhere have to pay, the gross 
injustice is committed of taxing one class for the 
benefit of another. It is in this that the system of 
protection consists. If it be said that the object is 
to favour labour, and consequently labourers, a 
double error is committed. 

Error the First. — The aim of economics is not to 
increase but to diminish labour. If I can obtain a 
yard of cloth from a foreigner by means of one day's 
work, it is contrary to this aim to force me to spend 
two. This eagerness to increase labour without 
augmenting production has been well called "Sisy- 
phism," for it chains humanity to efforts that lead to 
no result, just as Sisyphus was compelled to roll to 
the summit of a hill a stone that always fell back 
again. The goal we should pursue is the increase of 
commodities and diminution of toil. 



Distribution mid Circulation. 233 

Error the Second. — No service, but an injury, is 
done to workmen in thrusting them into manufac- 
tories by force of law and in spite of nature. Thus 
in the case of Italy it is a thousand pities that the 
custom-house should have snatched workmen and 
workwomen from their open-air tasks in this lovely 
country with its genial climate, to chain them in 
gloomy workshops for twelve or fourteen hours a day 
to the monotonous movements of machines. 

Free trade by applying to whole peoples the prin- 
ciple of the division of labour, assures them all the 
benefits it can bestow, and thus greatly increases 
their welfare. If in a family each member is em- 
ployed at what he can do best, it is clear that the 
total product, and consequently the individual shares, 
will be as great as can be attained. On the contrary, 
if each is forced by legislative restrictions to devote 
a part of his time to a labour for which he has no 
aptitude, each and all will be worse off. Apply this 
principle to nations, and it is plain that when each 
country devotes its energies to the tasks which its 
nature most favours, not only will it bring to the 
international market the maximum of products ob- 
tained with the minimum of toil, but the welfare of 
humanity at large will be increased in proportion 
to the increase of the productivity of each country's 
labour. 

A man who, in the wish to be self-sufficing, should 
constrain himself to manufacture everything he 
needed, food, clothing, furnituro, and books, would 



234 Elements of Political Economy, 

plainly be extremely foolish, nor is a nation that 
imitates him any wiser. 

If the soil of my farm is sandy, and so better 
suited for rye than for wheat, the least laborious way 
of obtaining wheat is, not to cultivate it myself, but 
to ask for it in exchange for my rye of those who 
have a clay soil. This plain truth demonstrates 
the absurdity of the system of protection which 
would oblige me to grow wheat even upon sand. 

The upholders of protection make the further 
objection that foreigners will inundate us with their 
produce. Such a fear is quite idle, since foreigners 
will not give us their goods for nothing, but will be 
willing to take ours in payment. Commerce is 
always an exchange of produce against produce. So 
much imported, so much exported. If imports 
exceed exports, all the better ; the foreigner is pay- 
ing us a tribute, and we shall have more to consume. 
If exports exceed imports, all the worse, it is now 
we who are paying a tribute. Here, however, we 
are touching on the difficult question of the balance 
of commerce, the discussion of which we defer to a 
later paragraph. 

Protectionists are anxious to sell much and buy 
little, in order that the foreigner may be forced to 
pay the excess of his purchases in cash. These aims 
involve a great contradiction. It is clearly impos- 
sible for the different countries in their exchanges 
with one another always to sell more than they 
buy. 



Distribution and Circulation. 235 

The principal cause of industrial progress in a 
country, is, as we have seen, the competition between 
manufacturers, each of whom strives to improve, and, 
above all, to cheapen, his fabrics, in order to extend 
his business. The more widely competition is ex- 
tended, the greater will be everyone's profit. Do 
not, therefore, limit it by ^he frontiers of a state, but 
extend it from country to country. Monopoly begets 
sloth, and protection, routine. On the other hand, 
the manufacturer who is forced to carry everything 
to perfection in endeavouring to keep his hold of the 
home market will conquer that of the world. 

A railroad uniting two countries facilitates ex- 
changes. Custom dues on foreign goods impede 
them. Yet the same men at the same time support 
two policies, the results of which are thus completely 
diverse. That Frenchmen and Italians after spend- 
ing nearly two millions sterling in boring a tunnel 
through the Alps, can place their custom-house 
officers at each end to destroy in a great measure by 
the dues they exact the usefulness of this marvel of 
engineering, is an inexplicable contradiction. 

To be consistent, a protectionist should demand 
the destruction of machines, for machines and free 
trade have as their common result the diminution of 
the labour necessary to obtain an object. Thanks to 
machinery I obtain my coal at less expense ; thanks 
to the stranger I again obtain it cheaper ; the result 
is identically the same. If we exclude the foreigner 
we should also break our machines ; and thus increase 



236 Elements of Political Economy. 



in both ways the amount of labour requisite to obtain 
a given quantity of coal. 

Capital turns spontaneously to the most lucrative 
field of employment. Protection diverts it from 
these to the less lucrative, compensating it for the 
difference by a tax levied on consumers, by the 
amount of which tax production is again diminished. 

As their last argument protectionists maintain that 
for objects of the first necessity, such as corn and 
iron, a country should be independent of foreigners, 
lest, in case of war, it should find itself without the 
means of nourishment or defence. There is no 
example, however, of a people having lacked neces- 
saries in war time, and to-day there is even less 
cause for fear than formerly. In the first place 
railvv^ays facilitate revictualling ; in the second, since 
the Treaty of Paris in 1856 the ships of neutrals 
may continue to transport the goods of belligerents. 
The complete blockade of a state is thus more im- 
possible than ever ; and it is the height of folly to 
inflict a permanent and certain harm in order to 
avoid a distant and more than improbable one. 

§ 2. The Balance of Trade. 

The balance of trade is the comparison which a 
country establishes between its exports and imports. 
When the total of the exports exceeds that of the 
imports the balance is said to be favourable, for the 
difference, it used to be thought, must be paid by 
the foreigner in cash ; in the contrary case it is called 



Distribution and Circulation. 237 

unfavourable, since the country has to pay for the 
excess of imports by means of the precious metals. 
This method of calculating is now said to be erroneous. 
I may export forty thousand pounds worth of goods, 
and the custom-house records their being shipped. 
The vessel, however, which carries them is lost in 
a storm, and I have no means of purchasing foreign 
wares. An excess of exports over imports is recorded 
of £40,000, and the country is impoverished by 
exactly this sum. If on the contrary my goods reach 
their destination and are sold for £60,000, I employ 
the money in buying other goods, which on their 
importation will yield a fresh profit. In this case 
the custom -house records an export of £40,000 and 
import of £60,000, leaving a balance against my 
country of £20,000. Yet it is exactly by this sum 
that it is enriched. These examples, it is added, are 
borne out by actual facts, since it is in the richest 
countries that the excess of imports occurs : in 
England, for instance, to the amount of more than 
eighty millions, and in France of late years to about 
half as much. Thus in 1880 England imported to 
the value of one hundred and forty millions in excess 
of her exports. Eighty of these are estimated to 
have proceeded from freight charges, assurances and 
merchants' profits, and the remaining sixty from the 
interests on foreign investments. 

The ancient doctrine of the balance of trade was, 
nevertheless not wholly wrong. Men of business 
still watch with attention, and, at times, anxiety. 



238 Elements of Political Economy. 

the fluctuations of this balance. As a matter of 
fact if the customary balance of exports and imports 
has been newly disturbed as, for example, when 
payment has to be made for grain imported to 
supply the deficiencies of a bad harvest, the debts 
created by the excess of imports have to be settled 
by means of specie. Money, the medium of exchange 
and basis of credit, becomes scarcer, and a " tight- 
ness " of the market or actual crisis is the result. 

§ 3. The Oversight of Free Traders. 

The goal at which to aim is the suppression, not 
the increase of labour. Free trade furthers this aim 
just as machinery does ; and thus both are plainly 
a blessing. There are men, however, who live solely 
by their labour ; and these, if labour is suppressed, 
have no alternative to extinction. Like machinery, 
then, free trade may oblige workmen to remove from 
one place to another, from the one in which custom 
dues furnished them with a barren employment to 
the one in which, with diminished effort, they will 
obtain far greater results. It was a displacement 
of this character that occurred in France when the 
Revolution of 1789 abolished the custom-houses 
which separated the ancient provinces. Abolish those 
which still separate the different states, and the same 
process may repeat itself. 

When such a displacement is accomplished men 
will be everywhere better off by reason of the greater 
productiveness of their labour, but they will perhaps 



Distribution and Circulation. 239 

be differently distributed, and this cannot be effected 
without suffering. The practical conclusion is that 
we should create no fresh legal monopolies by means 
of which workmen are settled where nature cannot 
yield them a large recompense, but that when such 
monopolies already exist the tariffs which maintain 
them must be reformed with prudence and circum- 
spection. 

§ 4. The System of Temporary Protection. 

This system has never been better expounded than 
by the German economist, Friedrich List, the initiator 
of the Customs Union (Zollverein) out of which has 
sprung the political unity of Germany. The final 
object, says List, is the establishment of universal 
free trade, but in order that this may bring the 
maximum of advantage to individual states, and 
consequently to the world at large, each people must 
make the best use of its natural resources. Now 
a country that is exclusively agricultural is necessarily 
backward, witness the past history of Poland. Since, 
then, although it is undoubtedly bad for privileges to 
give rise to artificial industries, many industries well 
suited to the nature of a country will never develop 
there unless at first protected, the best road to arrive 
at free trade and obtain from it the maximum of 
advantage lies through a temporary adoption of 
protection. 

Although both Adam Smith and J. S. Mill have 
expressed the same opinion as this of List's, I admit 



240 Elements of Political Economy. 

neither its premises nor its conclusion. An agricul- 
tural country is not necessarily backward. If Poland 
was so in former days, it was because a frivolous 
aristocracy which had the disposition of the nett 
revenue employed it for its own amusement, without 
doing anything to promote the instruction either of 
its serfs or of itself. In no country has moral and 
intellectual cultivation, comfort and happiness been so 
general as they were in New England before protection 
developed there the great industries. It is a mistaken 
habit that measures the civilisation of a state by the 
amount of the products to which its industries give 
rise. Civilisation has never been more brilliant than 
at Athens, where literature and art attained the 
summit of perfection, but where industry remained 
quite undeveloped. 

Temporary protection is no more needed to-day 
than it was in the times of Adam Smith. New 
discoveries and processes are immediately known 
all over the world, and capital and the spirit of 
enterprise are ceaselessly seeking to cultivate natural 
resources in whatever country they exist. Temporary 
protection, moreover, always tends to become perma- 
nent, since the interests created by privilege coalesce 
in opposing all reform. 

§ 5. Reciprocity. 

The upholders of this system argue, we are 
anxious for free trade, but for a free trade that shall 
be reciprocal and not on one side only. If the 



Distribution and Circulation 241 

foreigner opens his frontiers to us we open ours to 
him ; if he taxes our goods, we tax his. It is the 
lex talionis, the law of tit-for-tat applied to trade, 
just the same as the case of reprisals in war. In 
England at present this system is called " fair trade " 
in opposition to the " free trade " of its adversaries. 

These reply to the argument just cited, " Foreigners 
inflict loss on you by taxing your products on their 
importation, but by taxing theirs, you inflict on your- 
selves a second loss, by obliging yourselves to pay 
more dearly for them. Because he injures you, you 
impose a fine on yourselves. Impoverished by him, 
you complete your own ruin." 

The system of reciprocity can only be upheld as an 
instrument of warfare. In this character it forms the 
basis of all treaties of commerce. By taxing the 
products of the principal industries of any foreign 
country I obtain as my allies in his state all those 
who are engaged in them, since in order to induce 
me to lower my dues they will insist on counter- 
concessions being made to me. Beciprocifcy is thus 
the necessary introduction to free trade. 

§ 6. Commercial Treaties. 

Every state determines on a list of duties which 
must be paid on the importation of different kinds of 
goods. This list is called the general tariff. It 
then negotiates commercial treaties with other states, 
and grants reductions of the duties on certain goods, 
in exchange for similar reductions for its own products. 

B 



242 Elements of Political Economy. 

Each country endeavours to obtain the lowest scale 
of duties for the industries whose prosperity it most 
prizes. England bargains for its cottons and hard- 
ware, France for its wines and silks, Belgium for its 
coal and iron. 

Often the states who are parties to the . treaty 
stipulate that each of them shall enjoy the advantage 
of all reductions subsequently granted to any other 
country. This is called " the most favoured nation " 
clause. 

Commercial treaties are useful in assuring to in- 
dustry what is so essential to it, the fixity of foreign 
custom dues throughout the period embraced by the 
treaty. Nowadays commercial, treaties are of more 
importance than political, for it is on commercial 
treaties that the progress of industry in each country 
in a great measure depends, and also what is no less 
important, the development of commercial relations 
and community of interest between different lands. 



BOOK IVo 

THE CONSUMPTION OF WEALTH, 
CHAPTER I. 

ON THE CONSUMPTION OF WEALTH. 

§ I. What is Consumption ? 

By the successive labours of the farmer, the miller 
and the baker, a loaf has been produced. I eat it — 
matter remains ; of this I cannot destroy a particle, 
but the property it possessed of nourishing me under 
the form of bread, i.e. its utihty, has ceased to exist. 
There has been a consumption of wealth. To 
consume, then, is to destroy, by using, the utility, 
with which things have been invested by production. 

Utility may be destroyed otherwise than in the 
service of man. A house is burnt down, an object 
no longer used, owing, as in the case of sedan-chairs 
and hour-glasses, to a change in the taste or in the 
manner of living or producing. When this happens, 
there is a loss or diminution of wealth, but not a 
consumption of it. 

R 2 



244 Elements of Political Economy. 

Some economists have wished to exclude from the 
sphere of their science everything that concerns con- 
sumption, on the ground of its introducing a separate 
series of phenomena relating to liberty, morals and 
hygiene. On the other hand, the ancients only 
approached political economy in considering the 
problem of the employment of wealth, and in this 
they were right, since, in the first place, all production 
is in obedience to the demand of consumption, and, 
in the second, the chief end of economical science is 
to make wealth subservient to human development. 

The happiness of a people consists in their rational 
use of all it possesses, and it is precisely this that all 
the social sciences have in view. The right dis- 
tribution and employment of wealth are of more 
importance than its copious production, nor was 
Xenophon other than just in his aphorism, " No 
wealth is useful save to him who can put it to a good 
use. 

It is in the regulation of expenses that morality 
and hygienics impose their commands on political 
economy. Out of the number of these we may cite 
the following — All really unproductive consumption 
should be suppressed, and productive consumption 
directed according to the rules of science. Con- 
sumption should be so regulated as to favour the 
development of the faculties, moral, intellectual, and 
physical. Nothing must be granted for superfluities 
until every necessity has been satisfied. Lastly, 
nothing must be wasted. It is the habit manifested 



The Consumptmfi of Wealth. 245 

in picking up a fallen pin, or utilising the blank half 
sheet of a letter, that leads to fortune. It is 
economy that has been the basis of the prosperity of 
Holland amid its marshes and sands. Everywhere the 
Scotch proverb comes true, that " many a little 
makes a mickle." Economy is a duty owed to one's 
own dependants, and to other people as well, for 
without economy liberality is impossible. While, 
however, from the smallest income something should 
be set apart for those who are destitute through no 
fault of their own, beneficence should ever aim at the 
encouragement of labour and not of idleness. 

No favour should ever be shown to a consumption 
that bears ill results. " I have been told," says 
J. B. Say, " that the drunkenness of the people is 
necessary to make them insensible to their woes : it 
would be better to diminish their woes than excuse 
their drunkenness." 

Keep a watch on everything; neglect nothing. 
Remember the Eastern fable, ''For want of a nail the 
horse cast his shoe : for want of the shoe the rider 
lost his horse, and for want of the horse he was taken 
and killed." When Garfield was in command of a 
division he was wont to say, "Keep everything in order; 
victory may depend on the wheel of a gun-carriage." 

§ 2. Different Kinds of Consumption. 

Consumption may be divided as follows : 
(1) According to the consumers into jprivate, that 
of individuals, and pichlic, that of public bodies, such 



246 Elements of Political Economy. 

as the state, a county, a district or a parish 
(township). 

(2) According to the time of duration into rajpid 
and sloio. A service rendered, for instance, a lawyer 
or doctor's consultation, is consumed in the rendering ; 
agricultural products, with the exception of wines 
and preserves, at the end of a few days, or, at most a 
year : clothes last longer than these, and furniture, 
and, above all, buildings, longer still. 

Slow consumption is preferable to rapid, as 
favouring^ the accumulation of utilities. When a 
bottle of wine has been drunk, after the fleeting 
enjoyment nothing is left. The money it cost, if 
spent on a good book, will procure lifelong amusement 
and instruction to the purchaser and to his children 
after him. When everything goes into the mouth, 
the result is destitution. On the other hand, a well- 
furnished house forms a nest for a happy and 
industrious family. In Holland pretty houses to 
which nothing is lacking abound everywhere, even in 
the country. The thoughtful and prudent Dutchmen 
have known how to surround themselves with " home 
comforts." 

(3) According to its result consumption may be 
once more distinguished as improductive and re- 
prod itdive. 

The aim of production is the consumption of its 
products in the satisfaction of rational wants. 
Consumption is thus essential to production and the 
final cause of all economic activity. It is necessary, 



The Consumption of Wealth. 247 

however, that while consuming I also reproduce, lest 
I be left in destitution and everything come to a 
standstill. Thus consumption is bound to be re- 
productive under penalty of destitution or death. 

Consumption is unproductive when the consumer 
produces nothing. The do-nothing can plainly only 
live by taxing the fruits of other men's toil. Powder 
is used in an unjust war. The consumption is 
unproductive : nay, deadly. Powder is used in a 
colliery. The consumption is reproductive, for from 
it issues the coal which sets machines to work. 

(4) Once more, we may distinguish between con- 
sumption for enjoyment and industrial consumption. 
The object of the first is the immediate satisfaction 
of needs; that of the second, the manufacture of 
articles which will be of ulterior service. 

All production necessitates consumption. To 
make a pair of shoes there must be a consumption of 
leather, thread, nails, tools, and the provision needed 
to maintain life during the completion of the work. 
Industrial consumption is only another name for 
" cost of production." 

The "consumption for enjoyment" of the work- 
man and engineer, as that of the magistrate and 
instructor is also an industrial consumption, since it 
must be reckoned as the cost of production of the 
work accomplished or the service rendered. If the 
wealth produced exceed that which is consumed the 
country is enriched; in the contrary case, it is 
impoverished. Thus the increase of riches depends 



248 Elements of Political Economy. 

on the employment of the articles of wealth. Thus, 
also, a country is enriched the more rapidly the less 
the amount of its unproductive consumption, and the 
greater the productiveness of its industrial. 

§ 3. Should the Increase of Consumption be 
Encouraged ? 

It is only the increase of reproductive consumption 
that can be called useful. Yet desire, it may be 
said, is the mother of necessity ; and we may be told 
to look at the savage who stagnates in sloth because 
he has no desires. It is certainly true that to rouse 
a man from the life of a plant it may be good at the 
outset to teach him to appreciate the comforts of 
existence, but the lesson that is soon needed is that 
he must accumulate capital, produce more wealth, 
and, above all, put it to a good use. 

Modern times, in which civilisation is measured 
by the subtleties of enjoyment, tend to multiply 
wants. The ancients, on the contrary, ever preached 
that desires should be moderated. He who can say 
like the philosopher of old " Omnia meciim porto "• is 
truly free. The man with a thousand wants is a 
thousand times a slave, and needs other slaves to 
procure him satisfaction. J. S. Mill has said, " Our 
utility to others is measured not by what we do, but 
by what we do not consume ourselves." In truth 
it is only thus that there is created the capital from 
which wages are paid, credit draws security, and 
industry receives its food. 



The Consumption of Wealth. 249 



CHAPTER II. 

PRIVATE CONSUMPTION. 

§ I. Luxury. 

In the eighteenth century there was much discus- 
sion on the subject of luxury. When a financier 
asserted that it was the support of states, an econo- 
mist replied, " Yes, as the hangman's rope supports 
a criminal ; " and the economist was right. 

To be an object of luxury a thing must be at once 
costly and superfluous, i.e. it must satisfy a purely 
artificial want and have cost many days of labour. 
This sacrifice of the fruit of much labour to an idle 
enjoyment can never be other than an evil. It must 
be remembered, however, that what was a luxury 
yesterday will cease to be one to-morrow. A shirt 
for the body and a chimney in the house were great 
luxuries in the middle ages ; to-day they are necessities 
even for the poorest. 

Ancient philosophers and Christian moralists have 
vied with each other in their condemnation of luxury. 
Their instinct for the right opened their eyes to the 
fact which economic science has since fully demon- 
strated. Luxury is a source of trouble and wicked- 
ness to those who indulge in it, and of misery to 
every one else. 



250 Elements of Political Economy. 

Luxury has its root in three natural inclinations, 
of which two are vicious, the third almost a virtue. 
The first of these inclinations is sensuality, which 
leads us to seek the most exquisite pleasures ; the 
second, vanity. Of these sensuality owns some limits ; 
vanity none. " Heliogabakis," says Lampridius, '' used 
to feed the officers of his household on the entrails 
of barbels, the brains of pheasants and thrushes, 
partridge eggs, and the heads of parrots." Claudius 
-^sopus caused dishes to be served of the tongues of 
birds that had been taught to speak. It was not 
sensuality, but vanity that recommended these dishes 
so insensate in their costliness. 

The crown of luxury consists in doing violence to 
nature, and to this effect Seneca says in speaking of 
Caligula, " Nihil tarn efficere concujoiscehat quam quod 
posse effici oiegaretur. Hoc est luxuriae propositicm 
gaiidere perversis." " He desired nothing so much as 
what seemed impossible, for the main point of luxury 
is its deHght in the perverse." 

The savage is full of vanity, and uses tattooing before 
clothing. When more civilised, men still seek dis- 
tinction, but seek it by simplicity of attire and 
brilliancy of genius. On the one hand, luxury 
nourishes the vanity from which it was born, on 
the other hand, it gives rise to envy; it is thus a 
double source of a moral poison, the only antidote 
to which is a high cultivation of the intelligence 
and heart. 

The third feeling which gives rise to luxury is the 



The Consumption of Wealth. 251 

taste for the beautiful and instinct for ornamentation 
out of which have sprung the fine arts. Happily this 
instinct is best satisfied not by the richness of 
materials, but by the perfection of form. A natural 
flower is a more charming ornament than an imitation 
of it in precious stones, however much these may 
have cost ; and a statuette in terra -cotta from Tanagra 
is a thousand times more delightful than an idol 
of pure gold encrusted with diamonds. In any case 
it is by public, as opposed to private, luxury that 
the taste for beauty and ornament should chiefly be 
satisfied. 

Is it not deplorable that mankind should, almost 
everywhere, waste so large a portion of its time in 
manufacturing useless objects, while so many men 
and women still lack necessaries ? If all the forces 
that at present are thus squandered were but 
employed to satisfy essential needs, human welfare 
would indeed be increased ! 

Luxury has often been defended, not as good in 
itself but as supporting trade and industry, and 
supplying workmen with work. This error, though 
there could be no greater one, has been shared in by 
men of the highest genius, and even by eminent 
economists. The prejudice is universal. Thus in 
La Fontaine (liv. viii. 9), the rich man says : — 



*' Je ne sais d'homme necessaire 
Que celui dont le luxe epand beaucoup de bien. 
Nous en usons, Dieu salt ! Notre plaisir occupe 
L'artisan, le vendeur." 



252 Elements of Political Economy. 

" Fashions," says Montesquieu, '' are of the greatest 
importance. In the effort to gain the favour of 
empty heads, all branches of trade are continually 
being extended." Emptyheadedness, however, cannot 
promote prosperity. Rather, J. B. Say is right when 
he says, " The swift succession of fashions impoverishes 
the state both by what it does and by what it does 
not consume." 

Voltaire in Le Mmidain expresses the same idea as 
Montesquieu : — 

** Sachez surtout que le luxe enrichit 
Un grande etat s'il s'en perd un petit. 
Le pauvre y vit des vanites des grands." 

M. de Sismondi is still more precise. In his 
Nouveaux Princi2oles d'Economie politique (bk. ii. ch. 
ii.), he writes, " If the wealthy class suddenly took 
the resolution to live as the poor does, by its labours, 
and add the whole of its income to the capital, work- 
men would be reduced to starvation and despair." 
This is exactly the vulgar prejudice, which arises 
from a defective analysis. In the case instanced by 
Sismondi, the rich are made to add their income to 
the capital, but they can only do this by transform- 
ing this income into machines, or agricultural and 
industrial improvements, i.e. by employing a number 
of workmen. Fifty pounds squandered on a fashion 
will maintain fewer workmen than would be needed 
to clear an estate, inasmuch as manual labour is 
less highly paid in the country than in the towns. 

The creation of capital always involves the 



The Consumption of Wealth, 253 

employment of labour, and tends at the same 
time to increase wages ; since fresh capital requires 
fresh labourers, and the increased demand, for these 
will cause them to be better paid. 

To maintain that luxury supports labour is to assert 
that every destruction of wealth involves an increase 
of welfare. J. B. Say tells a story of his paying 
Sunday visits while at college, to an uncle who was 
both fond of good living, and at the same time a 
philanthropist. At dessert, after finishing his bottle 
this uncle used to break the glasses, exclaiming the 
while, " It's only fair every one should live." Here we 
have the popular error crystallised ; if the uncle had 
broken all his crockery and gutted his house, it is to 
be supposed that he would have fed still more mouths. 
On this reasoning, Nero burning Rome is a bene- 
factor of the race, and incendiarism a source of 
wealth ! 

« To set forth the truth : if with the money employed 
in replacing the broken glasses Say's uncle had 
planted trees, he would have rewarded the same 
number of hours of labour. Not only then would 
he have saved his glasses, but he would also have 
had trees which when grown, cut down, sawn, and 
made into furniture would have brought him in an 
income, supplied others with the means of furnishing 
their houses, and benefited workmen by an increased 
demand for their labours. 

Historians and moralists agree in the assertion that 
luxury accompanies the downfall of empires. The 



254 Elements of Politiccil Economy. 

explanation of this trutli is that luxury is an even 
greater violation of the social than of the moral order. 
Inordinate luxury is a result of an. excessive inequality, 
which gives rise to civil dissensions, despotism and 
the overthrow of states. 

Rightly does Voltaire say, " Luxury is the result, 
not of the rights of property, but of bad laws. It is 
bad laws which give birth to luxury, it is good laws 
that can destroy it." This is one of the effects which 
a system of equal inheritance in time might be 
expected to bring about. 

Montesquieu says, " When wealth is equally 
divided luxury cannot exist, for this is only sup- 
ported by the commodities obtained through the 
labour of others." 

"Were there no luxury," says Rousseau, "there 
would be no poor." A visit to the Alpine cantons 
of Switzerland, or to the valleys of Norway will 
show that Montesquieu and Rousseau were in the 
right. 

§ 2. Insurances. 

By ingenious applications of the principle of 
combination, insurances have become the very 
embodiment of the spirit of thrift and foresight. 

If a large number of people pay an annual con- 
tribution proportionate to the eventual loss against 
which they wish to guarantee, a fund can be formed 
out of which the victims of the misfortune may be 
indemnified. This fund must be equal to the average 



The Consumjjtion of Wealth. 255 

of annual losses, increased by the cost of manage- 
ment. Houses are in this way insured ao-ainst fire, 
crops against hail, ships and their cargoes against 
the perils of the sea, travellers against accident, men 
against death. 

A payment of eighteenpence per 100/. on the real 
value of a house will confer a claim to receive this 
value should the house be burnt. By the annual 
payment of a certain premium, a man may secure 
a capital sum to his heirs. The premium depends 
on the capital contracted for and the chances of the 
insurer's dying. The younger he is the smaller will 
be the premium, since there is a higher probability 
that he will continue to pay it for many years. 

Assurances are based on the calculation of pro- 
babilities and averages. Their advantages are great. 
They free the individual from the mishaps of fate. 
They set his mind at ease for the future. They 
develop the spirit of thrift and foresight from which 
they proceed. They furnish a solid basis for real 
or personal credit, since the insurance policy con- 
stitutes security for the loan. They disseminate the 
habit of co-operation, and favour the re -constitution 
of capital. 

The sick clubs and pension funds of friendly 
societies are managed on a similar principle. By 
means of a daily or weekly deduction from the work- 
man's pay or the clerk's salary, a fund is formed out 
of which compensation is paid in cases of accident 
and pensions granted in old age. 



256 Elements of Political Economy. 



CHAPTER III. 

PUBLIC CONSUMPTION. 

§ I. The Usefulness of Public Consumption. 

Public consumption is the consumption of public 
bodies, such as the state, the county, or the parish. 

Because money is not annihilated by being spent 
it has been thought that the consumption of public 
bodies destroys nothing and favours production. 
This is the same error as that as to the outlay on 
luxuries : the money continues to circulate, but the 
goods for which this money has paid have been 
consumed. 

" The King of England," says Voltaire, " has a 
million a year to spend ; this million, as he consumes 
it, is returned undiminished." Undoubtedly the 
precious metal is not destroyed, but the commodities 
purchased by the king have been made away with, 
and the people are so much the worse off. Instead 
of maintaining soldiers in barracks, make them board 
with the inhabitants of the country ; the latter will 
then soon perceive that there is less food for them- 
selves. The taxes they pay to maintain the soldiers 
represent the provisions which in this case they 
would consume in their natural forms. 

Thus all consumption is a destruction of utilities. 



The Consumption of Wealth. 257 

The problem to be solved is whether the utility pro- 
duced by the action of the state is greater than the 
utilities destroyed by its agents. 

§ 2. Functions of the State. 

Bad governments have done mankind so much 
harm, by war, by organised spoliation, and by exces- 
sive and badly-arranged taxes, that economists desire 
to reduce the action of the state as much as possible. 
They consider the state as an ulcer which eats into 
the heart of the people, and would gladly say with 
La Fontaine, *' Our enemy is our master ; " or 
commend, with Proudhon, that negation of all 
government which is called anarchy {avap^ia). 

Nevertheless the progress of civilisation has only 
been made possible by the action of the state. The 
definition and enforcement of law is the work of the 
state, and it is the law which, by guaranteeing the 
fruits of his labour to their creator, gives production 
an object. 

Bacon has said : " In sociciate aut vis aiU lex valet** 
" the ruling power in society is either force or law/' 
Where it is law, there is order, industry, economy, 
formation of capital, science, prosperity. Where it 
is force, there is strife, robbery, indolence, and misery. 

The state, by making roads and protecting those 
who travel by them, has favoured exchange, the 
division of labour, large manufactures, commerce, the 
enrichment and unification of the human race. By 

S 



258 Elements of Political Economy. 

providing instruction it diffuses science and the 
indispensable knowledge which together are, as we 
have seen, the principal sources of prosperity and 
true civilisation. Lastly, the first interest of a people 
is that justice should be well organised ; in other 
words, that its administration should be upright, 
speedy, aud inexpensive. Only the state can secure 
this. 

Some years ago a President of New Granada, 
thoroughly imbued with political economy in all its 
purity, announced that henceforth the state, restricted 
to its true functions, would leave everything to 
individual enterprise. In a short time roads were 
destroyed, harbours choked with sand, public security 
utterly lost, and education nowhere to be found. A 
return had been made to barbarism and the life 
in the primitive forests. 

In Turkey the state does nothing, having no funds 
at its disposal ; it is imprudent, however, to try 
personally to ascertain the advantages of the system. 

All public consumption is so much withdrawn 
from private consumption ; but the first is often 
much the more useful of the two. Apply the taxes 
on truffles and wine to public libraries and schools, 
and no one will have cause for complaint, not even 
the payers of the taxes. 

" Public expenditure," says Rossi, " is a method 
of making the national co-operation a benefit not 
only to some, but to all its members." 



The Consumption of Wealth. 259 

§ 3. Limits of the Functions of Public Bodies. 

On this suhject two opposite doctrines are upheld : 
the doctrine of the state as poKceman and the 
doctrine of the state as providence. In the first 
the state confines itself to guaranteeing security; 
in the second it assures to each of its subjects what 
is necessary and useful for them. The first doctrine 
is that of individualism, and maintains that from the 
perfection of individuals will result that perfection 
of the state which consists in its self-effacement. 
The second doctrine is that of the socialism of 
which Plato's Republic is the model, and maintains 
that when once the state is made perfect the 
perfection of its individual members will necessarily 
follow. 

Between these two extreme doctrines Adam Smith 
has preserved the mean, nor can his definition of the 
functions of government be improved. According 
to him the functions of a state are : — 

I. "The duty of protecting the society from 

the violence and invasion of other inde- 
pendent societies." On this point there 
is a general agreement. 

II. " The duty of protecting, as far as possible, 

every member of the society from the 
injustice or oppression of every other 
member of it." 

To guarantee to each individual the security of 

s 2 



260 Elements of Political Economy. 

his person and property, and to support justice with 
physical force, is an excellent definition of the essen- 
tial mission of government ; but neither Smith nor 
his successors seem to have suspected its compre- 
hensiveness and difficulty. 

To place and maintain every man in the possession 
of his own is to secure the reign of justice. Cuique 
suicm, "to each man his own," is a principle which 
can only be enforced by the civil laws, institutes, or 
codes which actually regulate all economic activity. 

The third function of the state according to Adam 
Smith is the task "of erecting and maintaining 
certain public works and certain public institutions, 
which it can never be for the interest of any 
individual, or small number of individuals, to erect 
and maintain, because the profit could never repay 
the expense to them, though it may frequently do 
much more than repay it to a great society." ( Wealth 
of Nations, bk. iv. ch. ix. ad fin) Examples of 
such works and institutions are light-houses, har- 
bours, roads and canals, universities, hospitals, and 
sometimes schools, &c. 

Individual enterprise should be the rule, state 
interference the exception. To justify the latter, 
two conditions are necessary : firstly, the matter 
in hand must be essentially for the public interest ; 
secondly, private individuals must be unable to 
render the services which this interest requires. 
Even when thus justified, state interference is 
always accompanied by inconveniences. 



The Consumption of Wealth. 261 

(1) The work it effects is done neither quickly 
nor cheaply. 

(2) Nepotism, favouritism and party exigencies 
often cause useless works to be undertaken and 
useful ones to be ill executed. 

(3) The action of the state by accustoming 
individuals to look to it for help paralyses private 
enterprise. 

The historian Bunsen when at Rome saw a house in 
flames. The crowd was shouting, but no one stirred 
a hand. Why ? Tocca al governo — the state should 
see to it — was the answer he received. In the 
United States, on the contrary, so soon as a fire 
breaks out, engines, admirably equipped by private 
individuals, pour in from every side. Private en- 
terprise is here fostered and on the alert. 

Jules Simon remarks, "The state should labour 
to render itself useless and pave the way for its 
resignation." He is right, but only on the under- 
standing that the state do not resign too soon. 

Under the old regime the duties of police were 
performed in Spain by a private society. This 
society bore the fine name of the Santa Hermandad, 
or Holy Brotherhood, but it committed the most 
villainous acts. 

If men saw clearly what is their interest, their 
duty and their privileges, of their own accord they 
would do everything that was right and nothing 
that was wrong. All constraint would become un- 
necessary. The state would be superfluous. There 



262 Elements of Political Economy. 



would arrive the reign of that perfect liberty which 
consists in doing good. 

In proportion then to the progress of society the 
functions of the state will diminish in number and 
importance. But this very progress is itself, in great 
part, the work of the state. 

The essential and permanent function of the state 
is the declaration and maintenance of the law. The 
state is, as Quesnay has well expressed it, " Physical 
force placed at the disposal of Justice." Its transi- 
tory, but no less important, function is to favour the 
progress of civilisation. 

First and above all the state is policeman and 
judge. But it must also be the road maker and 
schoolmaster. 

§ 4. Public Luxury. 

The more democratic a society becomes, the more 
the state is justified in encouraging the fine arts, 
the one luxury which it may be permitted. The 
Athens of Pericles will always be a model for other 
states to imitate. In his seventh Olympiad Pindar 
sang, "The day the Bhodians raised an altar to 
Athene, Zeus brought a yellow cloud into the sky 
and rained much gold upon the land." The shower 
of gold which falls upon a people which rightly 
encourages literature and the fine arts is a shower 
of pure and unselfish pleasures. 

In his Histoire de Zuxe, M. Baudrillart writes on 
the subject of public luxury, "At times it invites 



The Consumption of Wealth. 263 

the masses to enjoy certain pleasures, as public 
gardens, fountains and theatres ; at times it spreads 
the treasures of the beautiful before the multitudes 
shut out from the possession of the works of sculpture 
and painting. There are museums for art, just as 
there are libraries for science and literature, and, 
exhibitions for manufactures. In all its forms this 
collective luxury, if well directed, benefits every one. 
It raises and stimulates the genius of industry. It 
has, besides, this supreme merit that it deprives 
luxury of the selfish and solitary character which 
it displays in individuals, by bringing within reach 
of the people the advantages which as a rule are 
exclusively enjoyed by the rich, or grudgingly shared 
with a small circle of acquaintances." 

Athens raised the level of civilisation by the 
diligent culture of a love for the fine arts. Artistic 
decoration and art instruction in schools ought to be 
a means to the same end. " If education must first 
deal with realities and forms it uses these as vehicles 
to attain to the intellectually sublime." 

Would not the lower classes on whom material 
surroundings press so heavily find the best relief to 
their hard destiny if their eyes were opened to what 
Leonardo da Vinci calls Lo. Bellezza del Hondo, and 
they, as well as others, were thus prepared to enjoy 
all the splendours dispersed throughout the world, 
splendours, which, as Pascal expresses it, when the 
heart is open to receive them, soften its sorrows and 
inspire a presentiment and foretaste of happier days." 



264 Elements of Political Economy. 

Public luxury ought never to be supported by taxes 
on the necessities of life, nor be allowed to encourage 
among the rich a love of ostentation and sensuality. 
It should always tend to strengthen those highest 
sentiments, love of country and humanity, of righte- 
ousness and justice. 



CHAPTER lY. 

TAXATION. 

§ I. What is Taxation ? 

To defray the expenses of government a revenue is 
needed. This revenue may be furnished either from 
domains or from taxation. 

In former times kinoes derived almost all their 
revenue from domains, just as a private proprietor 
now lives from the rents of his estates. In the 
present day states still obtain a certain revenue in 
this way, as in Russia from the crown lands and in 
Belgium from the state railways. It is, however, 
chiefly by taxation that provision is made for the 
public expenses. 

Revenues derived from domains had one advantage 
in not diminishing the incomes of individuals. A 
tax on the other hand, is a fine on the incomes ol 
all who pay it, that is of the taxpayers. It is the 
price paid by the citizens for the blessings of social 
order. As Montesquieu, well expresses, it, "The 



The Consumption of Wealth. 265 

revenue of the state is a portion of his wealth 
sacrificed by each citizen in order to gain security 
for the rest or the means of enjoying it more 
agreeably." {Esprit des Lois, bk. xiii. ch. i.) 

When in exchange for the tax a government gives 
neither security nor comfort the tax is mere robbery. 
It is even worse when the robberies of a tyrant help 
to organise his oppression of his people. 

When the tax is moderate, well adjusted and well 
employed there is no expense more remunerative 
to the nation at large, or more useful to its neediest 
members. 

§ 2. Rules as to the Imposition of Taxes. 

The rules as to the imposition of taxes are of the 
greatest importance, since national decline and 
revolution mostly have excessive and ill adjusted 
taxes as their principal cause. 

Even when the expenses of the state are for 
necessary or highly useful purposes, the taxes from 
which they are defrayed give rise to much incon- 
venience. To diminish this inconvenience as much 
as possible certain rules have been devised which are 
here givQji. 

(1) The tax should be in proportion to the respec- 
tive abilities of the taxpayer. Though this principle 
is strictly just, it was not observed under the old 
regime. Then the rich, in other words the nobles, 
paid nothing, and the whole burden fell on the poorer 
classes who alone worked. 



266 Elements of Political Economy. 



(2) The tax should be completely fixed in-udvance 
in all its details, amount, method and time of payment. 
When it is otherwise, every person subject to the tax 
is in the power of the tax-gatherers. As these become 
insolent, their victims grow servile ; this may still be 
seen in eastern countries. 

(3) The tax ought not to fall on the means of 
production but on the net produce. Thus cattle, 
trees, steam-engines, &c., should be left untaxed. 
In many villages in Palestine the wealth-bringing 
palm trees have been torn up, because each tree Avas 
taxed. If this tax had been imposed oh the land, it 
would have been the owner's interest to have planted 
as many trees as possible so as to reduce the amount 
payable on each of them. 

Taxation has often caused more misery by being 
ill adjusted than by being excessive. 

(4) The tax ought to be levied at the time in 
which the taxpayer will be best able to afford it. 
For this reason in some countries the land tax may 
be paid by instalments. So too the succession duties 
are always readily paid because they are levied from 
an unexpected increase of the income of those who 
already had the means of living. 

(5) So far as possible the tax ought to bring into 
the state as much as it costs the citizens. The 
expenses of collection are paid by the nation and 
lost to the treasury. Of the dues levied at the gates 
of French towns twenty or thirty per cent, often serve 
to support the collectors, who are thus diverted from 



The Consumption of Wealth. 267 

productive labour and hamper tlie circulation of the 
goods of actual producers. 

(6) Taxes should be moderate, and never so high 
as to discourage production. 

"The extortioners of the old rigime," says J. B. 
Say, "even used to maintain that the peasant must 
be poor to prevent his being idle. This theory had 
as its result the neglect of agriculture, exhaustion of 
estates, a lazy peasantry, and a misery that often 
amounted to positive famine." 

When taxation absorbs too large a share of the 
produce, labour is discouraged and economic decline 
sets in. Under Louis XIY. vines were uprooted to 
escape the taxes called Aids, which, according to 
Vauban, often amounted to the price of the vintage. 
The two most powerful empires of the world, the 
Roman and thai: of Charles V., were both ruined by 
excessive taxation. 

In France the taxes collected by the state, the 
departments and communes exceeded in 1882, 
£160,000,000, and the net revenue from land was 
estimated in 1874 at only £158,000,000. The limit 
which it must be dangerous to pass seems to have 
been almost reached. 

(7) Taxes ought never to be raised from immoral 
sources, such as lotteries and gambling houses. 
Again, in fixing the amount to be paid, the taxpayer 
must never be put on his oath, for this is placing 
a premium on perjury. 

(8) Taxes shculd not be of such a kind as can be 



268 Elements of Political Economy. 

evaded by cheating the treasury, or an encourage- 
ment will be offered to fraud. Custom dues have 
this effect when they give rise to smuggling. 

There can be no worse laws than those which 
teach law-breaking. 

§ 3. Incidence of Taxation. 

To fix the " incidence " of a tax is to determine on 
whom the burden of it shall fall (incidere). 

The effect of most taxes is transmissible, and their 
burden is thus divided. The imposition of a tax on 
the food of workmen will cause wages to rise, since 
the workman must still live. The rise of wages will 
increase the price of goods, and thus the weight of 
the tax will finally fall on the consumer. Raise the 
price of a shopkeeper's license, he will spread the 
increase over his bills, and it will be paid by his 
customers. 

After all the changes of incidence, said the physio- 
crates, the whole burden will fall on the land ; no, reply 
their opponents, it is always the consumers who finally 
pay it. The truth appears to be that when a tax 
is of long standing everybody, either directly or 
indirectly, shares the weight of it. The amount of 
the several shares it is difficult to state, but the 
society adjusts itself to the burden, just as foot and 
boot end by fitting each other. 

As a result we may recommend the suppression of 
as many taxes as possible, beginning with the worst, 
but readjustments should always be avoided. 



The Consumption of Wealth, 269 

§ 4. A Single Tax. 

On reading the endless list of taxes invented by 
the ingenuity of financiers the question occurs : 
Why all these complications ? Why not make a 
direct demand on each taxpayer for an amount pro- 
portionate to his fortune ? Accordingly various 
proposals have been made for a single tax either on 
land, or income, or again on capital. 

The obstacle to the adoption of this attractive plan 
is the difficulty of finding any basis that would 
insure the tax being duly proportioned to individual 
means. The whole burden ought not to be borne by 
land, for land is not the sole source of wealth. Nor 
ought it to be imposed only on fixed capital, for those 
who draw their incomes from circulating capital or 
from their professions — merchants, bankers, lawyers, 
doctors, engineers, tradesmen — would pay little or 
nothing. Again, to require from every one a contri- 
bution in proportion to their income would be the 
perfection of justice ; but how is their income to be 
ascertained ? 

Rather than to commit gross injustices affecting 
individuals, it is better to submit to many petty 
inequalities of which every one feels a share. 

§ 5. Direct and Indirect Taxation. 

Direct taxes strike directly at those at whom they 
are aimed, for instance, at landed proprietors when 
they have to pay a land tax. Indirect taxes are 



270 Elements of Political Economy. 

really paid by consumers, but through the medium 
of the manufacturers who have to advance them. 
Thus the brewer pays the tax on beer, but since 
prices rise to cover this advance, it is the beer con- 
sumer who indirectly bears the burden. 

Statesmen who maintain large armies prefer indirect 
taxes, because the people pay them without noticing 
it. In this way the pigeon may be plucked without 
crying out. But the inconveniences of these taxes 
are none the less great : they are obstacles to commerce, 
as in the case of custom-dues ; they hamper industries, 
like the sugar tax ; or they diminish the comfort 
of the working classes, like taxes or salt, beer or 
wine. 

Unfortunately as these taxes are very productive 
they are difficult to suppress. Two free coun- 
tries, England and the United States, still de- 
rive the chief part of their revenue from indirect 
taxation. 

As- a general rule the most necessary articles of 
consumption, such as salt and bread, should be left 
untaxed, and heavy imposts should be placed on 
superfluous or harmful luxuries, such as tobacco and 
alcohol. 

§ 6. The Budget. 

The budget — an English word from the old 
French hogete, a small pocket — is the estimate of 
the state's revenue and expenditure for the coming 
year. 



The Consumption of Wealth. 271 

In free countries the budget is brought forward 
by the Finance Minister, and passed by a vote of 
Parhament. 

The annual vote on the budget is the weapon by 
which the legislative power, the Parliament, can 
impose its will on the executive power, the elected 
or hereditary sovereign. The holder of the purse 
strings has always the upper hand. If Parliament 
refuses to vote supplies the sovereign is reduced to 
impotence, unless by a violation of the constitution 
he impose taxes on his own authority. 

The budget should be clear, exact, and with 
securities against a deficit. In modern states this 
last quahty is rare. The hogHe from being a httle 
purse has become enormous. It grows every year, 
and is too frequently empty. 

§ 7. Loans. 

When a deficit occurs in a budget, from some un- 
expected event such as a war, or dearth, or an excess 
of ordinary or extraordinary expenditure, states have 
recourse to borrowing. The budgets of future years 
are often burdened with the interest and sinking 
funds for these loans. 

Nearly all governments contract loans with a readi- 
ness truly deplorable. A statesman who borrows has 
large means at his disposal. The public who sub- 
scribe for the shares find a good investment. The 
tax payer is blind or indifferent, or, if he calculates, 
only concerns himself with the facts immediately 



272 Elements of Political Economy. 

before him. The advantages of the expenditure are 
felt at once, the weight of the debt is reserved for 
the future. 

The greater a government's want of foresight, 
the more dangerous does the system of borrowing 
become. In Spain, Mexico, Peru, and Turkey, it has 
ruined either the state, or its creditors, and in some 
cases both. 

The only legitimate excuses for hampering future 
generations with a debt, are to save a country, 
or to execute works from which posterity will 
profit. 

The founders of the Eepublic of the United States 
of America could not tolerate a standing debt. 
They maintained that each generation ought to pay 
its own way. It is in pursuance of this theory that 
the citizens of the United States still continue to 
pay war-taxes, to the end that their debt may be 
completely wiped off. 

The general public so little understands the dis- 
astrous effects of loans that it is still ready to repeat 
the foolish remark of Voltaire: "A state which is 
indebted only to its own citizens is in no way im- 
poverished, and its debts are actually a fresh 
encouragement to industry. (Ohservaiions sur le 
Commerce, le Luxe et les Impots.) 

To meet exceptional expenses it is always better 
to have recourse to taxation rather than borrowing. 
This has always been the theory and the aim of 
Mr. Gladstone. On either plan money, or the goods 



The Consumption of Wealth. 



273 



which it represents, are withdrawn from private 
consumers and employed by the state. The drain 
effected by taxation is the more severe, since the 
taxpayer receives no bonds in exchange. On the 
other hand, the drain caused by loans, though less 
severe, is more lasting. Every year the taxpayer 
has to sacrifice some enjoyment to pay his share of 
the interest of the National Debt. In addition to 
this, as Tracy remarks, " The payment of this interest 
provides the means of living for a crowd of idle 
people who, without it, would be obliged to seek 
useful employments either for themselves or their 
capital." {Commentaire siir V Esprit desLois, bk. xxii.) 
The national debts of most civilised countries are 
enormous, and many states are no longer able to 
pay the stipulated interest. The following table 
will show the amounts of the debts of the principal 
states in 1879:— 





Millions Sterling. 


United States . 


405-40 


Germany 


. 220-00 


Austria-Hungary 


. 421-24 


France 


. 825-00 


Great Britain and Ireland , 


' 778-24 


Russia 


600-00 


Italy 


. 408-48 


Spain 


. 525-00 


Low Countries 


82-00 


Carried forward 


4265-36 




T 



274 Elements of Political Economy. 





Millions Sterling. 


Brought forward 




4265-36 


Belgium 




46-20 


Denmark 






10-24 


Sweden 






12-00 


Norway 






5-24 


Portugal 






82-48 


Greece 






20-00 


Turkey- 






250-00 


Turkish Tributary States 




21-00 


Switzerland . 


red 


1-40 


Total . 


4713-92 


Four thousand seven hund 


and fourteen 


millions sterling 1 









Supplementary Chapter. 275 



SUPPLEMENTAEY CHAPTER. 

ECONOMIC QUESTIONS 11^ THE UlflTED STATES. 

§ I. The Tariff and Wages. 

The general question of free trade and jDrotection has 
been treated in a previous chapter (Book III., Chapter 
VI.). One argument for protection was not mentioned 
there, which is much urged by protectionists in the 
United States — the argument that protection is neces- 
sary to maintain the high wages paid in this country. 
It is said by the advocates of protection that the com- 
petition of articles made by ill-paid labourers in Europe 
would reduce, if free trade were established, the prices 
of articles made in this country, and that wages must 
fall correspondingly. Professor Laveleye does not 
mention this argument, because it is not advanced by 
protectionists in Europe. On the contrary, in Ger- 
many and France high duties are demanded in order 
to protect the ill-paid labourers of those countries from 
the competition of the better-paid labourers of England. 
This fact shows sufficiently that low wages in them- 
selves do not enable a country to compete in another 
country, and that high wages do not prevent it from 
competing ; otherwise England could not compete on 
the continent of Europe. The truth of the matter in 
this country is, that in those branches of industry to 
which we can most advantageously direct our labour 
and capital, the labourers produce a large product, and 
employers can afford to pay them high wages. If in 



276 Elements of Political Economy, 

a given branch of industry, these high wages cannot 
be afforded, this industry is one which it is not ad- 
vantageous for our country to undertake. Agricultu- 
ral labourers in the United States are paid much higher 
wages than such labourers receive in any European 
country. Yet nobody believes that the wheat and 
grain produced by the ill-paid labourers of Europe can 
be imported hither in competition with our own wheat 
and grain ; everybody knows that, on the contrary, 
we exj)ort these products to Europe. The reason is 
that the United States have great advantages for rais- 
ing agricultural products ; hence high wages are and 
can be paid to the labourers producing them. The 
general high rate of wages with us is due fundament- 
ally to the great general productiveness of labour, 
which, again, is due in part to the energy and effi- 
ciency of our labourers, in part to the extended use of 
machinery, and in a very large part to our great natu- 
ral resources. It is in no sense due to the protective 
policy. If in making particular commodities, for in- 
stance, silk goods, such high wages cannot be paid to 
labourers under a system of free trade, it is a proof 
that it is not worth while for us to make silks. "We 
can get labourers in Europe to make silks for us at the 
lower rates of pay which prevail there. We can em- 
ploy our own labourers, who are now making silks, in 
producing other commodities — for instance, grain or 
cotton goods. In producing the grain or cottons our 
labourers are advantageously employed ; and in ex- 
change for these commodities we can get from the 
foreign labourers more silks than our domestic labour- 
ers can produce at home. 



Supplementary Chapter. 277 



§ 2. The Present Phase of the Tariff Question. 

Although the protectiye system directs the industry 
of the country into unproductive channels, and is not 
to be defended on economic principles, it does not 
follow that it should immediately be swept away. A 
bad state of things may exist, and it may still be diffi- 
cult to substitute for it a good state of things. It has 
already been said (see page 95) that the introduction 
of new machinery, though beneficial and desirable, 
may temporarily be injurious to those engaged in 
using the old machines that are to be replaced. A simi- 
lar injurious effect might result in this country from 
the sudden introduction of free trade, or eyen from 
a sudden great diminution of protection. The trans- 
fer of labour and capital from an industry which has 
been maintained only by the aid of protective duties, 
to another industry which needs no protection, is like 
the change from old machines to new and better ones. 
It increases the productiveness of labour, and decreases 
the cost of commodities. But it may be for a while 
harmful to the labour and capital which have been em- 
ployed in the protected industries. This labour and 
capital may not be able to withdraw with ease from 
their existing occupation to the more productive in- 
dustries which need no protection. The capital can 
perhaps be withdrawn only by permitting the ma- 
chines and fixtures gradually to wear out ; the labour- 
ers can change but slowly and with more or less diffi- 
culty from the one class of industries to the other. 
Hence any reduction of the protective duties should 
take place gradually and carefully ; if possible, on a 



278 Elements of Political Economy. 

deliberate plan announced in advance, in order to en- 
able the transfer of labour and capital to take place 
without unnecessary hardship. 

It is not likely that a complete abolition of protec- 
tive duties in this country will take place at any time 
in the near future. Professor Layeleye has called 
attention to the familiar fact that direct taxes are 
much more irksome than indirect taxes. This is 
doubtless, in principle, an objection against indirect 
taxes ; because, if the public revenue is raised by the 
more irksome direct taxes, the people will be more 
likely to insist on economy in the public expenses. 
But on the other hand, indirect taxes, being paid in 
the shape of higher prices of commodities consumed, 
and not directly out of pocket, are much less objected 
to by taxpayers. The people, that is, the taxpayers, 
prefer to pay indirect taxes on commodities, rather 
than direct taxes on their income or property ; and 
this may be the case even if they know that the indi- 
rect taxes have ulterior harmful effects on industry at 
large, as in the case of protective duties. In the 
United States, it would at present be practically im- 
possible to raise the revenue required by the federal 
government by direct taxes. Duties on imports are 
the easiest and readiest form of indirect taxation. 
Being easily levied and collected, and paid almost 
unconsciously, they will probably continue to exist for 
a long time, even though the knowledge of their 
economic badness should become generally diffused. 
But these duties, if they are to stand, should at least 
be arranged so as to burden the people as little as 
possible. They should not be higher than is necessary 



Supjplementary Oha^pter, 279 

in order to bring in the reyenue which the general 
goyernment needs. At present the goyernment raises 
by duties $100,000,000 a year more than it needs. 
This is indefensible. Moreoyer, duties should not 
be confined to articles which are produced in the 
country, that is, to protected articles. They should 
be leyied equally as much on articles like coffee, tea, 
and spices, which are not and practically cannot be pro- 
duced within the country, as on articles like wool, iron, 
and silks, which the country does produce. The tariff 
on articles such as wool and iron, which as compara- 
tiyely " raw " materials enter into the manufacture of 
many articles of a higher degree of manufacture, is 
also disadyantageous, in that it increases prices at 
home, and stands in the way of making sales abroad. 
In our present tariff, wool, iron, and silks are taxed ; 
while articles like tea and coffee, almost without 
exception, are admitted duty-free. This is a great 
mistake. Duties on tea and coffee haye no such effect 
as do those on wool and iron ; namely, that of turning 
the industry of the country into unproductiye channels. 
They act merely as taxes, like the internal taxes on 
tobacco and spirits, and for this reason are greatly 
preferable to duties on wool and iron. If any duties 
are to be remoyed, the latter should be the first taken 
off. Eyen if the reyenues must be raised chiefly by 
duties on imports, these should primarily be leyied on 
articles not produced in the country. The opposite 
policy, that of leyying protectiye duties on articles 
like wool and iron, in preference to purely reyenue 
duties on articles like tea and coffee, has been fol- 
lowed in this country ; and this is one of the most 
emphatically bad features of the existing tariff. 



280 Elements of Political Economy. 

§ 3. The Internal Taxes. 

The goyernment at present raises a large part of 
its revenue by means of internal taxes, chiefly on 
spirits and tobacco. The revenue from these sources 
has been, on the average of recent years, about 
1120,000,000 yearly, of which more than two-thirds is 
derived from spirits and fermented liquors. It has 
been proposed to abolish these taxes, in order that the 
duties on imports may be retained without change. 
This would be highly impolitic. Taxes on articles 
like these are little regarded by the consumer who 
pays them. If he finds the taxes heavy, he can escape 
them by refraining from consuming spirits or tobacco, 
or diminish them by consuming less of these articles. 
Such a decrease of consumption is not to be regretted, 
as it would be in the case of wool, or iron, or sugar ; 
for these are mainly taxes on bad habits and vices. 
They are, moreover, easily collected and bring in a 
large revenue. As compared with our import duties, 
they have the great advantage of not diverting the 
industry of the country from productive occupations 
to less productive ones. 

§ 4. The Money of the United States. 

The chief quality necessary for money is stability 
in value. The precious metals have been chosen to 
perform the functions of money because they possess 
this quality in a preeminent degree. Paper money 
has some advantages over the precious metals,' but the 
only way in which eifectually and certainly to secure 
for it the essential quality of stability of value, is to 



Swpjplementary Chajpter, 281 

base it on specie, and to make it immediately and un- 
failingly exchangeable for specie. There is no strong 
intrinsic objection against the issue of paper money 
by the goyernment. The objections are of a practical 
kind. A goyernment is likely to oyerissue its prom- 
ises to pay, and when it overissues, it cannot be com- 
pelled to redeem and contract them, as a bank can be 
compelled. The temptation to governments to oyer- 
issue is strong. The jDrinting of paper money is the 
easiest of all methods of raising revenue. Moreover, 
there are always many ignorant and unthinking peo- 
ple who believe that abundance of money is in itself 
a good thing ; and debtors are apt to be in favor of 
measures which, by raising prices, make easier the 
payment of their debts. All experience proves that 
there is no more baneful expedient than the oyerissue 
of paper money ; and, since governments are under 
such strong temptations to overissue, it is best that 
they should not issue at all. Banks, which are 
compelled to redeem in case of oyerissue, are more 
safely to be entrusted with the issue of notes. It is 
also said, in favor of the issue of notes by banks, that 
they accommodate their issues to the demands of trade, 
increasing them as more money is wanted, and decreas- 
ing them as less money is wanted. It may be doubted, 
however, whether their flexibility exists to a very great 
extent ; it certainly does not exist, to a sufficient de- 
gree to be of great utility, in our national bank sys- 
tem. But under our national bank system the secur- 
ity for the redemption of the notes is absolute ; the 
danger of oyerissue by the banks does not exist. As 
the issue of notes is based on a special deposit of bonds 



282 Elements of Political Economy. 

of the United States at the government treasury, the 
objection which Professor Laveleye makes (page 222) 
against the issue of notes by banks whose stockholders 
have a limited liability for the debts of the banks, does 
not apply. "When a good system exists, no needless 
change should be made from it. The national bank 
system should therefore be retained as long as pos- 
sible. At present the high price of government bonds, 
the low rate of interest on them, and the tax on the 
notes issued by the banks, make the notes a source of 
so little profit that there is a tendency among the 
banks to give up their circulation. By abolishing the 
tax on circulation, and re- arranging the government 
bonds in such a way that their market price may be 
nearer their par value (on which latter alone the cir- 
culation is based), the circulation may again be made 
a source of profit sufficient to induce its retention. 
It is not, however, desirable that the national debt 
\ be retained forever. It is being paid off, as it should 
I be, though at present with needless haste. As the 
government bonds are gradually redeemed, the basis 
of the national bank-notes will be taken away, and 
these notes must be withdrawn. Sooner or later some 
substitute for them must be found. To have that 
substitute consist entirely of specie would be need- 
lessly costly. It has already been said that there are 
strong practical objections against the issue of paper 
money by the government, but it is possible that the 
national bank notes, as they are withdrawn, will be 
replaced by government notes, similar to those now in 
circulation. If the government, however, is to issue 
notes, rigorous measures should be taken that the 



Supplementary Chajpter, 283 



issue be limited, and that the notes be made certainly 
and immediately conyertible into specie. The gov- 
ernment should under no circumstances issue more 
notes than there are bank-notes withdrawn ; and it 
should always keep on hand an ample reserve of spe- 
cie, with which to pay notes presented for redemp- 
tion. If the specie reserve is to bear a proportion 
to the note issue, it should be at least one-third of it. 
The best plan probably would be one similar to that 
now pursued by the English government in regard to 
the Bank of England notes. Let a certain amount of 
notes be issued ; let this quantity be decidedly less 
than the amount of specie which the country would 
need in the absence of paper money ; for every note 
issued over and above this quantity let the govern- 
ment keep dollar for dollar in specie. 

§ 5. The Silver Question. 

In the previous section specie has been spoken of as 
the necessary basis for paper money. Should that 
specie consist of both silver and gold, or only of the 
latter of these metals ? The considerations which bear 
in favor of the general retention of silver, concurrently 
with gold, as part of the money of civilized countries, 
have been stated by Professor Laveleye (pages 202, 
203). The most important argument is the greater 
danger of fluctuations in the value of money, if gold 
were the only metal freely coined. It is said, for in- 
stance, that at the present time, if gold be retained as 
the standard by civilized nations, there is danger of 
an appreciation in the value of gold — that is, of a 
general fall of prices — on account of the comparatively 



284 Elements of Political Economy. 

limited quantity of gold, and the very large and grow- 
ing quantity of exchanges which that gold must efcect. 
This danger is probably exaggerated by the opponents 
of the gold standard. It is by no means clear that any 
permanent tendency toward a fall of general prices 
exists. The argument at most is good against a 
farther extension of the single gold standard, in 
countries where that standard does not yet exist ; it 
does not bear with force in fayor of a change to a 
double standard, in countries v/here a gold standard 
now exists. On the other hand, there are very strong 
considerations against the free coinage of silver. The 
simplicity of a single standard is in itself an advantage. 
Silver is bulky for any -but small transactions. The 
commercial community have a distinct preference for 
gold ; and such a preference, if it exist in fact, is a 
strong obstacle to the introduction of silver. Finally, 
and mosfc important, it is exceedingly difficult, in fact 
impossible, to coin both gold and silver at such rela- 
tive values that one of them will not be valued diifer- 
ently as a commodity from what it is valued as a coin. 
In this case Gresham's law (page 203) comes into op- 
eration, and that metal which is given less value as a 
coin than it has as a commodity, will be exported. 
There will then be nominally a double standard, but 
j)ractically only a single standard, for only one of tlie 
metals will remain in circulation, namely, that one to 
which the laws of the country give a greater value 
than the open market gives it. For these reasons it 
is best to make gold the standard of value, and to use 
silver merely as a subsidiary coin. The difficulty aris- 
ing from the operation of Gresham's law is recognized 



8uj>pleinentary Chapter, 285 

by all rational advocates of the double standard. It is 
proposed to overcome that difficulty by an interna- 
tional agreement fixing the rate at which the two 
metals shall be coined by different countries. Such 
an agreement, if entered into by a sufficient number 
of important countries, might have an effect in coun- 
teracting the operation of Gresham*'s law. No sensible 
bimetallist thinks the double standard practicable in 
the absence of such an agreement. 

Whatever be one's opinion on the general question 
of bimetallism, the ]3resent method of coining silver 
in the United States cannot be defended. The 
government now coins a silver dollar which contains 
only as much silver as is worth a,bout 85 cents in gold, 
at the present market price of silver. This silver 
dollar is made equal to a gold dollar in effecting pay- 
ments. If the silver dollar were coined freely, that is, 
if everybody x\A\o had 85 cents worth of silver could 
go to the mint and have it coined into a dollar, it is 
clear that silver would rapidly be coined in large quan- 
tities. Gresham's law would come into operation. 
The gold in the country would be rapidly displaced by 
the silver and exported, and silver would become the 
specie standard of value. This has not yet happened, 
because the government does not coin silver freely. It 
coins only 2,000,000 of the dollars each month. But 
the fact that silver is coined in this limited way merely 
makes a difference from the effect of its free coinage, 
in the length of time it will take for the silver dollars 
to displace the gold. To the extent that silver is 
coined, it takes the place of gold. If the coinage of 
silver is continued at the rate of $24,000,000 a year. 



286 Elements of Political Economy. 



gold will gradually be driyen out of the country, and 
the silver dollar will eventually become the sole 
standard of value. This is equivalent to making 85 
cents do what 100 cents formerly did. It is equivalent 
to reducing all debts, and defrauding creditors, to 
that extent. It is equivalent to depreciating the 
money of the country, and has the evil effects of such 
depreciation. The coinage of the silver dollar on the 
present system should therefore be stopped. If silver 
is to be retained as part of the standard of value, the 
dollar of silver should at the least be made equal to 
the dollar of gold. To do this in such a manser as 
in fact to retain both metals in circulation, is hardly 
possible, as has already been shown. It certainly is 
not possible without an agreement between the differ- 
ent nations which mean to coin silver freely, as to the 
rate at which they will coin the silver. Such an 
agreement is possible, though not probable. The ad- 
vantages of the double standard to be attained by it, 
are hardly sufficient to make it much to be desired. 

§ 6. American Shipping and the Navigation 

Laws. 

Thirty years ago 75 per cent, of the foreign trade of 
the United States was carried on in American vessels. 
At present only about 15 per cent, is so carried. For 
this great change there are several reasons. (1) Ships 
can now be built more cheaply in other countries. 
Timber for' wooden ships is absolutely and relatively 
much dearer in this country than it was a generation 
ago ; and our protective tariff increases the cost of 
many materials used in building ships. Moreover, 



Supplementary Chapter. 287 

iron steamships haye been largely substituted for 
wooden yessels. The iron steamships can be built 
most cheaply in England, and can carry at lower rates ; 
the work of carrying goods tends to be given to the 
iron ships, which can do it at least cost. (2) The war 
of the rebellion caused many American vessels to be 
sold or transferred to the flags of other nations, in 
order that they might escape capture by the Confederate 
cruisers. By our navigation laws, vessels so sold can 
never be bought back and again become American 
vessels. (3) The laws of the United States impose 
manj restrictions and burdens on vessels which are to 
sail under the American flag. They must be built in 
this country ; they must be owned and officered en- 
tirely by American citizens ; they must pay a heavy 
tonnage tax, heavy local taxes, large fees to the con- 
sular officers at foreign ports ; they must pay three 
months' extra wages to seamen discharged in foreign 
ports ; they are subject to many dues for pilotage, 
wharfage, etc. To some of these charges, and restric- 
tions foreign vessels are also subject, and in so far they 
do not, of course, hamper the competition of the Ameri- 
can merchant vessels. But most of them affect Ameri- 
can vessels alone. In so far as they prevent the people 
of the United States from engaging in an occupation 
which they can with advantage carry on, the restric- 
tions are harmful, and should be abolished. There is 
no reason, for instance, why we should not have free 
ships ; why American citizens should not be allowed 
to buy vessels built in foreign countries, and sail them 
under the American flag. If it be said that it is de- 
sirable for political reasons, that ships should be built 



288 Elements of Political Economy, 

in this country, in order that a nayal seryice may be 
more readily organized in case of war, the answer is 
that the present prohibitory system has not caused the 
construction of ships of the "kind that would be needed 
in case of war. Aside from this, if the goyernment 
is to be prepared for war, it should make its prepa- 
rations directly and efficiently, by maintaining an 
adequate nayy. 

It has been proposed to pay subsidies to American 
yessels, in order to enable them to compete with 
foreign yessels. This proposal should be energetically 
resisted. It is not in itself a good thing that Americans 
should sail ships and carry goods ; no more than it 
would be in itself a good thing for them to engage 
in growing tea and coifee, or than it is an adyantage 
for eyery producer to carry his own products to market. 
The thing to be desired is that goods should be car- 
ried cheaply. It is not worth while for the people of 
this country to undertake the carriage of goods to 
and from foreign countries, unless they haye ability 
for doingo the work as cheaply as foreigners do it. If 
our industry is not advantageously applied to the 
shipping trade, let it be confined to other occupations. 
The restrictions on that trade perhaps prevent 
American citizens from undertaking the business of 
carrying goods to and from other countries, when, in 
the absence of these restrictions, they could do this 
work as cheaply or more cheaply than foreigners. 
The restrictions should therefore be remoyed. But if 
Americans cannot do this work, under conditions of 
freedom, as cheaply as foreigners can do it for the 
country, they should not be paid for doing it. 



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